Reserve Bank of India (Rural Co-operative Banks – Interest Rates on Advances) Directions, 2025
RBI master-direction RBI/DOR/2025-26/308 · 28 Nov 2025
RBI master-direction RBI/DOR/2025-26/308 · 28 Nov 2025
Summary
Check the official recordThese Directions establish the framework for interest rates on advances by Rural Co-operative Banks. Banks must determine lending rates based on cost of funds and transaction costs with Board approval. Banks must ensure transparency by publishing and displaying minimum and maximum interest rates at every branch. Interest on advances requires monthly rests, except for agricultural advances which follow crop season practices. For small value loans, banks must implement approval processes and justify total costs. Banks must also adopt a Board-approved policy for microfinance loan pricing, including interest rate models and ceilings on charges. These Directions repeal previous instructions on interest rates for Rural Co-operative Banks. The Reserve Bank of India maintains supervisory authority over interest rate practices.
What you must do
Key dates
Who is affected
Exceptions
If you do not comply
RBI/DOR/2025-26/308 DOR.CRE.REC.227./13.03.000/2025-26 November 28, 2025
Reserve Bank of India (Rural Co-operative Banks - Interest Rates on Advances) Directions, 2025
Table of Contents
In exercise of the powers conferred by Sections 21 and 35A read with Section 56 of the Banking Regulation Act, 1949, and all other provisions / laws enabling the Reserve Bank of India (‘RBI’) in this regard, RBI being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Directions hereinafter specified.
Chapter I - Preliminary
A. Short Title and Commencement
These Directions shall be called the Reserve Bank of India (Rural Co-operative Banks - Interest Rates on Advances) Directions, 2025.
These Directions shall come into effect immediately upon issuance.
B. Applicability
In this context, ‘Rural Co-operative Banks (RCBs)’ shall mean State Co-operative Banks and Central Co-operative Banks, as defined in the National Bank for Agriculture and Rural Development Act, 1981.
C. Definitions
(1) ‘Microfinance loan’ shall have the same meaning as assigned in Reserve Bank of India (Rural Co-operative Banks – Credit Facilities) Directions, 2025.
(2) ‘Rests’ refers to periodicity of charging interest to borrowers.
(3) All other expressions, unless defined herein, shall have the same meaning as have been assigned to them under the Banking Regulation Act,1949 or the Reserve Bank of India Act, 1934 or any statutory modification or re-enactment thereto or as used in commercial parlance, as the case may be.
Chapter II - General guidelines
A. Interest Rate Framework
Though interest rates have been deregulated, rates of interest beyond a certain level may be seen to be usurious and can neither be sustainable nor conforming to normal banking practice. A bank shall determine its lending rates taking into account its cost of funds, transaction cost, etc., with the approval of its Board of Directors or any other committee of the Board to whom the powers have been delegated by the Board, subject to adherence of transparency and shall charge interest on advances on the terms and conditions specified in these directions.
It should be ensured that the interest rates charged are transparent and known to all the customers. A bank shall, therefore, publish the minimum and maximum interest rates charged by it, and display this information in every branch.
Interest shall be charged on all advances at monthly rests.
Provided that instructions on charging interest at monthly rests shall not be applicable to advances for agriculture and activities allied to agriculture and a bank shall follow the existing practice of charging / compounding of interest on agricultural advances linked to crop seasons.
(1) An appropriate prior-approval process should be prescribed for sanctioning such loans, which should take into account, among others, the cash flows of the prospective borrower.
(2) Interest rates charged by a bank, inter-alia, should incorporate risk premium as considered reasonable and justified having regard to the internal rating of the borrower. Further, in considering the question of risk, the presence or absence of security and the value thereof should be taken into account.
(3) The total cost to the borrower, including interest and all other charges levied on a loan, should be justifiable having regard to the total cost incurred by the bank in extending the loan, which is sought to be defrayed and the extent of return that could be reasonably expected from the transaction.
(4) An appropriate ceiling may be fixed on the interest, including processing and other charges that could be levied on such loans, which may be suitably publicised.
B. Pricing of Microfinance Loans
(1) A well-documented interest rate model / approach for arriving at the all-inclusive interest rate.
(2) Delineation of the components of the interest rate such as cost of funds, risk premium and margin, etc. in terms of the quantum of each component based on objective parameters.
(3) The range of spread of each component for a given category of borrowers.
(4) A ceiling on the interest rate and all other charges applicable to the microfinance loans.
Chapter III - Repeal and Other Provisions
A. Repeal and saving
With the issue of these Directions, the existing Directions, instructions, and guidelines relating to Interest Rates on Advances as applicable to Rural Co-operative Banks stand repealed, as communicated vide circular DOR.RRC.REC.302/33-01-010/2025-26 dated November 28, 2025. The Directions, instructions and guidelines repealed prior to the issuance of these Directions shall continue to remain repealed.
Notwithstanding such repeal, any action taken or purported to have been taken, or initiated under the repealed Directions, instructions, or guidelines shall continue to be governed by the provisions thereof. All approvals or acknowledgments granted under these repealed lists shall be deemed as governed by these Directions. Further, the repeal of these directions, instructions, or guidelines shall not in any way prejudicially affect:
(1) any right, obligation or liability acquired, accrued, or incurred thereunder;
(2) any, penalty, forfeiture, or punishment incurred in respect of any contravention committed thereunder;
(3) any investigation, legal proceeding, or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture, or punishment as aforesaid; and any such investigation, legal proceedings or remedy may be instituted, continued, or enforced and any such penalty, forfeiture or punishment may be imposed as if those directions, instructions, or guidelines had not been repealed.
B. Application of other laws not barred
C. Interpretations
(Vaibhav Chaturvedi)
Chief General Manager