RBI’s new norms brings flexibility for borrowers and banks

MUMBAI: The Reserve Bank of India (RBI) has set about easing lending norms while tightening its financial oversight. Its latest rules promise cheaper and more flexible loans for borrowers, wider access to credit against gold, and easier capital-raising avenues for banks. Draft proposals, meanwhile, would extend repayment terms, sharpen exposure limits and quicken credit reporting—measures that collectively modernise bank lending.On September 29th the RBI unveiled seven directions for lenders—three binding from October 1st and four open for consultation until October 20th.The immediate changes grant banks more leeway in lending. Interest-rate spreads can now be adjusted sooner, with certain borrower charges cut at any time rather than locked in for three years. Banks may also, if they wish, let personal-loan customers switch from floating to fixed rates at reset points—which is a flexibility and not a mandate.Gold and silver lending has been broadened. Working-capital loans, once limited to jewellers, can now flow to all manufacturers using bullion as raw material. Smaller urban co-operatives in Tier 3 and 4 cities have been allowed into the business too, extending credit’s reach.Capital rules have been eased. The RBI has relaxed restrictions on the use of foreign-currency and overseas-rupee bonds as Additional Tier 1 capital. This tweak should make it easier for banks to tap global markets, improving their buffers under Basel III.The draft changes are more sweeping. The Gold Metal Loan scheme may stretch repayment periods to 270 days and include outsourced jewellery makers. Exposure norms for foreign-bank branches would be brought in line with group and counterparty rules, with thresholds tied more closely to Tier 1 capital. Credit reporting would speed up, moving from fortnightly to weekly, and incorporate unique CKYC identifiers—promising fresher and sharper data. RBI has invited Feedback until October 20th.