On 7 October 2026, the RBI (Reserve Bank of India) raised the repo rate by 0.25 percentage point, from 5.25% to 5.50%. The repo rate is the rate at which RBI lends to banks. If your loan is linked to it, your rate may rise at the next reset. Your lender will then either raise your EMI or stretch your tenure. RBI rules from 2023 say you get a say in that choice. This guide explains those rules and what to do.
What are RBI's rules on floating rate reset?
On 18 August 2023, RBI issued a circular titled "Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans". EMI means equated monthly instalment: your fixed monthly payment.
- Who must follow it: commercial banks, regional rural banks, co-operative banks, and NBFCs (non-banking finance companies), including housing finance companies.
- Which loans: EMI-based floating-rate personal loans. In RBI's definition, personal loans to individuals include consumer credit, education loans, loans for creating or improving immovable assets such as housing, and loans for investing in financial assets. So most home loans are covered.
- Which benchmarks: RBI's FAQs say it covers these loans whether linked to an external benchmark like repo, or an internal one like MCLR or base rate.
- Existing loans: lenders had to extend the rules to existing and new loans by 31 December 2023.
The rules were last amended from 1 October 2025 (see the circular on rbi.org.in). RBI has since consolidated many older circulars into new Master Directions for each type of lender (November 2025), so check the latest directions for the current text.
What choices do you get when your rate resets?
Under the rules, you can choose:
- A higher EMI, keeping the same tenure.
- A longer tenure, keeping the same EMI.
- A mix of both.
- To prepay, in part or in full, at any point during the loan. Prepayment charges, if any, follow RBI's other rules.
Lenders may also offer a switch to a fixed rate at reset. All charges for using these options must be disclosed in your sanction letter, and again whenever they change.
Is the switch to a fixed rate still a right?
Not any more. The 2023 rules said lenders shall offer a switch to a fixed rate at reset. From 1 October 2025, RBI changed this. A lender may now offer the switch, at its option, as per its Board-approved policy. That policy may also limit how many times you can switch during the loan.
So ask your lender directly: do you offer a fixed-rate switch, at what rate, and for what fee? RBI's FAQs say lenders can levy charges for switching, but these must be disclosed and shown on their website.
How often does your rate reset?
- Repo-linked (EBLR) loans: under RBI's directions for commercial banks, the rate must reset at least once every three months. EBLR means external benchmark lending rate.
- MCLR loans: the reset period matches the MCLR tenor in your loan. A loan on one-year MCLR resets once a year. MCLR means marginal cost of funds based lending rate, an internal benchmark set by the bank.
Your sanction letter shows your benchmark, your spread over it, and your reset dates.
Worked example: what a rate rise does to a ₹40 lakh loan
Loan: ₹40,00,000 for 20 years (240 months) at 8.00%. The standard formula gives the EMI:
EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where P = ₹40,00,000, r = 8% ÷ 12 ÷ 100, and n = 240. EMI = ₹33,458.
After 3 years (36 EMIs), you owe ₹37,24,726 with 204 EMIs left. If nothing changes, you pay ₹31,00,625 more in interest. Now the rate rises.
| New rate | Option | EMI | EMIs left | Interest from here |
|---|---|---|---|---|
| 8.25% | Keep EMI, stretch tenure | ₹33,458 | 212 (+8) | ₹33,54,828 |
| 8.25% | Raise EMI, keep tenure | ₹34,015 (+₹557) | 204 | ₹32,14,278 |
| 8.75% | Keep EMI, stretch tenure | ₹33,458 | 230 (+26) | ₹39,66,049 |
| 8.75% | Raise EMI, keep tenure | ₹35,142 (+₹1,685) | 204 | ₹34,44,320 |
| 8.75% | Mix: EMI +₹1,000 | ₹34,458 | 214 (+10) | ₹36,36,682 |
What the table shows:
- A 0.25 point rise adds ₹557 to the EMI, or 8 more EMIs.
- Stretching tenure costs more in total. At 8.25%, it costs ₹1,40,550 more interest than raising the EMI.
- The longer tenure grows fast as rates climb. A 0.75 point rise adds 26 EMIs, more than two years.
- A small prepayment helps. At 8.25%, paying ₹1,00,000 at the reset and keeping the EMI ends the loan in 200 EMIs. Interest from here falls to ₹30,44,858.
Check which option your lender applied after the last reset. If you prefer another, ask for it in writing.
What is negative amortisation, and why is it banned?
Negative amortisation means your EMI does not even cover the month's interest. The unpaid interest is added to the loan, so you owe more each month instead of less. The rules say stretching the tenure must not lead to negative amortisation.
In the example, after 3 years the EMI of ₹33,458 covers the interest on ₹37,24,726 only up to a rate of about 10.78%. Above that, keeping the EMI unchanged would make the loan grow. The lender would then have to raise the EMI.
What must your lender tell you?
- At sanction: how a change in the benchmark could change your EMI, tenure or both. The annual rate or APR must also be in the Key Facts Statement and loan agreement.
- When the rate rises: any increase in EMI or tenure must be told to you promptly through suitable channels.
- Every quarter: a statement showing principal and interest recovered so far, the EMI amount, the number of EMIs left, and the annualised rate or APR for the full tenure. It must be simple and easy to understand.
If you do not get the quarterly statement, ask for it in writing.
What should you do at your next reset?
- Find your benchmark, spread and reset date in your sanction letter.
- Check your latest quarterly statement for EMIs left. Compare it with your original tenure.
- Decide: higher EMI, longer tenure, a mix, or a prepayment. Tell the lender in writing.
- Ask whether a fixed-rate switch is offered, and its rate and fee.
- If you are on MCLR or base rate, ask about moving to a repo-linked rate.
- Compare your spread with what other lenders offer new borrowers. If yours is higher, ask for a cut, or consider a balance transfer.
Lenders decide whether to cut your spread. Nothing is guaranteed, but asking costs nothing.
Do it in 10 minutes, free
Use the Rate Change calculator on LowerMyEMI. Enter your outstanding loan, EMIs left and the new rate. It shows the new EMI or the extra EMIs, side by side, with Excel or PDF export. Then LowerMyEMI can draft a letter to your own bank asking for a lower spread or a move to a repo-linked rate. It can also write one email per lender asking for a better offer. You send them from your own email. It is free. We are not a bank, NBFC or loan agent.