NEW DELHI: The Reserve Bank of India on Wednesday said it will rationalise the regulatory framework governing interest rates on advances across all banks and financial institutions moving to a principle-based approach that will harmonise lending rate guidelines, address operational aspects of the existing MCLR and EBLR regimes, and standardise divergent market practices on interest charging.
Announcing the measure in its Statement on Developmental and Regulatory Policies, released alongside the monetary policy resolution, the central bank said draft directions incorporating the proposals will be issued shortly for public comments.
The rationalisation has three stated objectives -- harmonising guidelines across regulated entities while maintaining proportionality; addressing certain operational aspects of the current framework on the marginal cost of funds-based lending rate (MCLR) and the external benchmark lending rate (EBLR); and standardising divergent market practices on interest charging, including the day count convention and benchmark reset dates.
The Reserve Bank said the measures are intended to ensure uniformity, enhance transparency in loan pricing, strengthen monetary transmission and bolster consumer protection.
The reference to day count convention and benchmark reset dates points to practices that determine how much interest a borrower actually pays over a given period and when a change in the policy rate flows through to loan pricing. Divergence across lenders on both has been a recurring source of variation in effective borrowing costs on otherwise comparable loans.
The statement also announced two measures for the co-operative banking sector. The RBI said it has decided to resume licensing of urban co-operative banks on an 'on tap' basis, ending a pause of about two decades on fresh licences, following analysis of feedback on a discussion paper published on January 13, 2026. Draft guidelines will be issued shortly for stakeholder consultation.
The central bank also said it will review prudential norms on concentration risk management for rural co-operative banks, currently governed by Credit Monitoring Arrangement instructions issued in 2008. Citing significant expansion and change in the banking sector and the co-operative segment since then, the RBI said the review seeks to develop a vibrant co-operative sector while addressing prudential concerns from concentrated lending. Draft amendment directions are being issued for wider stakeholder consultation.
