RBI’s New Rule Can Reduce EMIs if You Have a Good CIBIL Score in 2025

The Reserve Bank of India has introduced a new rule, allowing banks and NBFCs to lower the spread on floating-rate loans without waiting for the earlier 3-year lock-in period. As per RBI’s new rule, lenders can now pass on the benefit of benchmark rate cuts to borrowers in the form of adjustments to the loan tenure and EMI amount and other benefits like switching to a fixed rate. Continue reading this blog to learn more about all the benefits. 

What is RBI’s New Rule for Bank Spreads?

When you avail of a loan, the interest rate offered by the lender comprises two fundamental elements, i.e., the Reserve Bank’s benchmark rate and the lender’s spread (additional charges added by the lender). Ideally, lenders like banks and NBFCs determine their spread based on the following factors: 

• Internal policies that include margins and operational expenses

• Credit risk premium depending on the borrower’s CIBIL score 

Earlier, lenders were not allowed to make modifications to their spreads for three years. However, as per RBI’s new rule, this lock-in period has been removed, and lenders can now pass on the benefit to borrowers immediately whenever there is a reset of RBI’s benchmark rate. 

According to the provisions of the new circular, “borrowers shall be given the choice to opt for enhancement in EMI or elongation of tenor or for a combination of both options...” 

How Can a Good CIBIL Score Help Reduce Your EMIs? 

For lenders like a bank or an NBFC, your CIBIL score is the primary indicator of your creditworthiness. It is built upon factors such as consistent repayment behaviour, credit utilisation, age of credit history etc. A high CIBIL score is automatically perceived as lower lending risk which is when lenders become willing to reduce the credit risk premium of their spread.  

With RBI’s removal of the earlier 3-year lock-in period, anytime RBI reduces their benchmark rate, lenders can reassess the borrower’s credit profile and reduce the credit risk at their discretion.  

A lower credit risk premium can result into: 

• Reduced interest rates 

• Reduced EMI amount 

• Favourable loan terms 

Additional Benefits of RBI’s New Rule 

As per Reserve Bank’s latest rules, borrowers can not only benefit from reduced EMIs but also enjoy more flexibility and benefits. These are as follows: 

Flexibility to switch to fixed rates: If you have taken a Personal Loan or Business Loan on floating rates, lenders can now offer you the option to switch to a fixed interest rate as per their internal policies. This is particularly beneficial for those who prefer predictable EMIs, although charges may be incurred. 

Make prepayments toward your loan: You can also prepay your loan anytime during the loan tenure as per existing prepayment/foreclosure charges. 

Choose how your loan adjusts: You will also be able to opt for enhancement in EMI amount or elongation of loan tenure or a mix of both. 

Improved transparency: As per the new rules, any change in EMI or tenure due to interest rate movement must be communicated to you immediately. Additionally, the lenders are to share quarterly information indicating principal and interest amount paid, EMIs remaining, annualised interest rates etc. 

Also Read: Latest RBI rules about CIBIL score 

To Conclude 

RBI’s new rule makes loans more flexible and borrower friendly. The removal of the lock-in period for spreads means that regulated entities can pass on benefits of revised RBI benchmark rates to their borrowers based on improvement in credit profile. This is yet another reason to check your CIBIL score regularly and proactively reach out to your lender during your loan’s interest reset period. 

FAQs 

What is RBI’s new rule for bank spread? 

RBI’s new rule allows banks to reduce the spread on floating-rate loans before the earlier 3-year lock-in period, enabling quicker EMI reductions for borrowers. 

How can a good CIBIL score lead to reduced EMI as per RBI's new rule? 

With a good CIBIL score, banks can now reduce the spread immediately, and borrowers can choose to lower EMIs, extend tenure or opt for a combination of both. 

Can I switch my floating-rate loan to a fixed-rate loan under RBI’s new rule? 

Yes. At the time of interest rate reset, your lender may offer you the option to switch to a fixed-rate loan, based on their board-approved policy. This gives you more control over your repayment structure.