RBI unveils norms to enable faster transmission of rates

The Reserve Bank of India (RBI) on Monday announced a series of regulatory amendments aimed at faster transmission of policy rates, easing gold loan norms and relaxing norms of large credit exposures. Three of the seven changes will take effect from October 1, while the remaining four have been released as draft proposals for public feedback.

Under the revised directions on interest rate on advances, banks will now be allowed to reduce spread components on floating rate loans before the current three-year lock-in period, a move aimed at benefiting borrowers. This could result in faster transmission of rate cuts, leading to lower EMIs or interest outgo. Additionally, banks may offer borrowers the option to switch to fixed-rate loans at the time of interest rate resets, though this will no longer be mandatory.

This apart, the RBI has expanded the scope of lending against gold and silver collateral allowing banks and tier-3 and -4 urban co-operative banks to extend working capital loans to any borrower using gold as a raw material, not just jewellers.


Norms for Faster Transmission of Rates Unveiled
The central bank also revised the Basel III capital regulations, increasing the eligible limit for perpetual debt instruments (PDIs) issued in foreign currency or rupee-denominated bonds overseas. The move is expected to provide banks with greater headroom to raise tier-1 capital via offshore markets.

Among the draft proposals, the RBI has suggested extending the repayment tenor for gold metal loans (GML) to 270 days from 180 days and allowing non-manufacturing jewellers to avail GML for outsourced production.

The regulator also proposed aligning the Large Exposures Framework (LEF) and Intragroup Transactions and Exposures (ITE) norms for foreign bank branches in India. eExposures to head offices will now be considered only under LEF and credit risk mitigation benefits will be extended to a broader set of exposures.

To improve the timeliness and accuracy of credit data, the RBI has proposed that credit institutions submit information to credit bureaus on a weekly basis, replacing the current fortnightly requirement. The draft also mandates faster error rectification and inclusion of CKYC numbers in consumer reports. Public comments on the draft circulars are invited until October 20.