The Reserve Bank of India (RBI) on Monday announced a set of regulatory changes aimed at speeding up the transmission of policy rates, easing norms for gold loans, and relaxing rules on large credit exposures. Out of the seven measures, three will come into effect from October 1, while the remaining four have been issued as draft proposals for public consultation.

 

Under the revised guidelines for interest rates on advances, banks will be allowed to reduce the spread component on floating-rate loans before the existing three-year lock-in period. This is expected to benefit borrowers by enabling faster pass-through of rate cuts, potentially lowering EMIs and overall interest costs. Banks can also provide borrowers the option to switch to fixed-rate loans at the time of rate resets, though this will no longer be mandatory.

 

The RBI has broadened the scope of lending against gold and silver collateral, allowing banks as well as tier-3 and tier-4 urban co-operative banks to provide working capital loans to any business using gold as raw material, not just jewellers.

 

Changes have also been made to Basel III capital regulations, raising the permissible limit for perpetual debt instruments (PDIs) issued in foreign currency or rupee-denominated bonds overseas. This move is expected to give banks more flexibility to raise tier-1 capital through offshore markets.

 

Among the draft proposals, the RBI suggested extending the repayment period for gold metal loans (GML) from 180 days to 270 days and allowing non-manufacturing jewellers to avail GML for outsourced production. The regulator also proposed aligning the Large Exposures Framework (LEF) with Intragroup Transactions and Exposures (ITE) norms for foreign bank branches in India, ensuring exposures to head offices are counted only under LEF, while broadening credit risk mitigation benefits.