Reserve Bank of IndiaMUMBAI: The RBI's move to harmonise interest rate frameworks across regulated entities is likely to standardise loan pricing and improve monetary transmission while reducing the pricing discretion currently available to NBFCs.The move would mark a departure from the existing structure where commercial banks operate under structured benchmark systems, while NBFCs retain greater flexibility through internal, board approved prime lending rate models. According to the broad direction of policy, the central bank is likely to extend principle based interest rate rules across lenders to curb arbitrary pricing and strengthen consumer protection.The framework is expected to push NBFCs towards standardised benchmarking of floating rate loans. Under current bank rules, retail and MSME floating rate loans are linked to an external benchmark rate such as the RBI repo rate or treasury bill yields, while other floating loans are tied to internal benchmarks such as MCLR. NBFCs could be required to adopt recognised external benchmarks for retail and MSME loans or formal internal benchmarks instead of internal prime rates. They may also be required to follow a uniform benchmark within each loan category to improve predictability for borrowers.The RBI is also likely to introduce standardised reset timelines for floating rate loans. At present, NBFC practices allow flexibility in resetting rates, which can result in slower transmission of rate cuts compared to hikes. Under the expected alignment, external benchmark linked loans may require resets at least once every three months, while internal benchmark linked loans could have a maximum reset period of one year. Loan agreements are likely to be required to clearly specify reset dates to improve transparency.The framework could also tighten rules governing spreads over benchmark rates. In banking regulations, the final lending rate is derived by adding a spread to the benchmark, which includes business costs and a credit risk premium, and rules restrict increasing the credit risk premium during the loan tenor unless there is a documented deterioration in the borrower’s credit profile. NBFCs are likely to face similar restrictions, which would limit unilateral increases in spreads during the loan tenure. Boards may be required to define and document components of spreads, including cost of funds, risk premium, and operating margin, along with specified limits.The RBI is expected to move towards standardising interest calculation practices across lenders. Variations in day count conventions, compounding methods, and rounding practices currently lead to differences in effective borrowing costs. The proposed approach may mandate monthly rests for most loans, except certain categories such as agricultural loans, and introduce uniform day count conventions. Standard rounding rules could also be enforced to ensure consistency.The proposed changes are also likely to include a strengthened framework for microfinance and small value loans. Existing bank guidelines require such loans to be priced reasonably, with interest rates reflecting underlying costs. NBFCs operating in microfinance and retail segments may be required to provide a clear breakdown of pricing components, including cost of funds, risk premium, and margin. These charges are likely to come under closer supervisory scrutiny to prevent hidden fees or excessive pricing.