The RBI has recently introduced a set of changes in lending norms that bring welcome relief for people repaying loans. Among the most impactful updates is a change that allows borrowers to benefit sooner when interest rates drop meaning lower Equated Monthly Installments (EMIs) or shorter loan tenures.
Banks Can Cut Interest “Spread” Earlier EMI Relief Comes Faster
Under older norms, banks had to wait a fixed period (typically 3 years) before reducing the “spread” that is, the part of your interest rate over the benchmark rate even if market rates had fallen. Now the RBI has removed this lock-in period.
As a result, if interest rates drop or your credit profile improves, banks can revise your loan’s interest rate sooner. This change can lead to a reduction in your EMI amount or shorten your loan duration, giving borrowers more flexibility and less burden over time.
More Flexibility and Transparency for Borrowers
The updated rules also increase transparency banks must clearly disclose all loan components (benchmark rate, spread, fees) at sanction, and communicate any change promptly if the rate resets. Borrowers get clearer information about changes in their EMI or tenure when lending rates move.
Because of these changes, borrowers with floating-rate home loans, personal loans or other loans linked to external benchmarks stand to benefit the most. With responsible credit history and timely repayments, borrowers can request a review to reduce their interest cost.
When Does This Come Into Effect What Borrowers Should Do
These rules came into force recently (as of 2025), meaning banks are now allowed to act on them. If you have an existing loan with floating interest, it’s a good idea to contact your lender and ask whether your interest spread can be re-evaluated especially if your credit score or repayment history has improved, or if benchmark rates have fallen. Doing this could reduce your EMI load or shorten loan tenure a major benefit for household budgets.