RBI fixes 6.45% govt bond rate: How it works, interest payment explained

The rate applies from October 4 to April 3 and is reset every six months based on 182-day Treasury Bill yields.

The Reserve Bank of India (RBI) has fixed the interest rate on Government of India Floating Rate Bond (FRB) 2028 at 6.45 per cent per annum for the six months from October 4, 2026 to April 3, 2027.

 

Unlike a conventional fixed-rate bond, the return on this government security can change every six months.

 

So, investors should not treat the newly announced 6.45 per cent rate as the return they will earn throughout the remaining life of the bond.

 

How is the 6.45 per cent rate decided?

 

The coupon on FRB 2028 is linked to the yield on 182-day Treasury Bills (T-Bills).

 

In its October 1 release, the RBI said the bond carries a coupon with a base rate equivalent to the average Weighted Average Yield (WAY) of the last three auctions of 182-day T-Bills, along with a fixed spread of 0.64 percentage points.

 

 

This means the return has two components:

 

•       Base rate: Average WAY of the last three 182-day T-Bill auctions

 

•       Fixed spread: 0.64 percentage points

 

The RBI then uses this formula to determine the coupon for each six-month interest period.

 

For the period beginning October 4, 2026, this calculation has resulted in a coupon of 6.45 per cent.

 

What does 6.45 per cent mean for investors?

 

The interest rate is quoted on an annual basis, while interest is paid half-yearly.

 

At the current rate, an investment of Rs 1 lakh would earn Rs 6,450 over a year if the 6.45 per cent rate were to remain unchanged.

 

However, that assumption may not hold. Since the coupon is reset every six months, the interest rate for the next period could be higher or lower depending on movements in 182-day T-Bill yields.

 

For an investor, this is the key difference between FRB 2028 and a fixed-rate government bond: The future income is not known in advance for the entire investment period.

 

Does a higher T-Bill yield mean a higher return?

 

Broadly, yes.

 

Because the bond's coupon is linked to the average yield of 182-day T-Bills, a rise in these yields can push up the coupon when the rate is reset. Conversely, if T-Bill yields fall, the coupon on the floating-rate bond can also decline.

 

The fixed spread of 0.64 percentage points provides an additional component to the return, but it does not protect investors from changes in the underlying T-Bill yield.

 

This makes FRB 2028 different from a product where the interest rate is locked in when the investor buys it.

 

Is FRB 2028 the same as Floating Rate Savings Bonds?

 

No. Investors should not confuse Government of India Floating Rate Bond 2028 with the Floating Rate Savings Bonds, 2020 (Taxable).

 

Although both have floating interest rates, they are different securities and their interest rates are determined using different benchmarks.

 

The FRB 2028 coupon is linked to 182-day T-Bill yields, with the 0.64 percentage point spread specified by the RBI.

 

What should investors consider?

 

The 6.45 per cent rate may look attractive compared with some conventional fixed-income options, but investors should look beyond the headline rate.

 

First, the rate is applicable only from October 4, 2026 to April 3, 2027. It cannot be assumed that the same rate will continue thereafter.

 

Second, interest income from the bond is taxable according to the investor's applicable tax rules. Therefore, the post-tax return will be lower than the headline 6.45 per cent for investors who have a tax liability on the interest.

 

Third, investors should consider the investment's tenure and liquidity requirements before committing money. A floating rate can work differently from a fixed-rate instrument when market interest rates move.

 

For investors seeking predictable income, a fixed-rate government security may offer greater certainty. Those comfortable with changing interest rates may find the floating-rate structure useful because its coupon can adjust with the underlying T-Bill yields.