RBI Tweaks Loan Rules for Retail Borrowers, Working Capital Access for Jewellers

The Reserve Bank of India on Monday tweaked rules for MSME, retail and personal loans along with working capital loans to jewellers, to benefit borrowers and provide greater flexibility to the lenders.

For MSME, retail, and personal loans, while banks are free to decide the interest-rate spread over the external benchmark, all components of the spread so far could be altered only once every three years. The latest amendment, effective October 1, 2025,  now allows banks to reduce the other spread components for the benefit of the borrower earlier than three years.

Further, for EMI-based personal loans, lenders have so far been required to provide a mandatory option to the borrowers, at the time of reset of interest rates, to switch over to a fixed rate. The RBI has now made it discretionary for banks to provide this option to personal loan customers.

"The switch over to a fixed rate loan can adversely impact the profitability of banks, especially if such a reset happens at the bottom of the interest rate cycle. Hence allowing lenders the discretion to provide such options to borrowers based on their liability profile will offer them the flexibility to manage these transitions strategically, thereby safeguarding their profitability," said Anil Gupta, Senior Vice President and Co-Group Head, ICRA.

The central bank has also revised the Lending Against Gold and Silver Collateral) - (1st Amendment) Directions, 2025 that so far prohibited banks from lending for the purchase of gold or silver in any form or lending against the security of gold or silver. 

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The tweaked rules now allow banks to provide need-based working capital loans to a borrower that uses gold as a raw material or input in its manufacturing or industrial processing activities. It also now allows urban co-operative banks in tier 3 and tier 4 cities to offer working capital loans on the same lines.

The revised rules were part of the seven directions issued by the RBI for lenders, of which three will come into force from October 1, while public feedback has been sought on four others.

Directors issued as drafts for consultations are around the Gold Metal Loan scheme that facilitates working capital finance to jewellery exporters in the form of raw gold imported by banks, prudential norms on a bank’s exposures to its counterparties and group entities, and credit information reporting by credit institutions to credit information companies (CICs).