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RBI Small Business Loan Norms: Spread Reset, Gold Credit and AT1 Bonds

1 October 20251 min read
BANKING & FINANCERBI Small BusinessLoan Norms: SpreadReset, Gold Creditand AT1 Bonds1 October 2025safalsetu.com

Why in the news

RBI announced guidelines giving banks more freedom on the spread charged on small business loans, which could earlier be revised only once in three years.

Key facts

  • Spread: banks can cut other spread components sooner, helping borrowers.
  • Fixed rate: borrowers may switch at the reset.
  • Gold: loans to buy gold or silver were barred except working capital for jewellers; working capital now extends to any business using gold as raw material.
  • Directions: seven issued; consultation closes 20 October 2025.

Other measures

  • Bigger lending role for smaller urban co-operative banks.
  • Foreign-currency and overseas-rupee bonds can count as Additional Tier 1 (AT1) capital.
  • Credit reporting moves from fortnightly to weekly, using CKYC identifiers.

Key terms

TermMeaning
SpreadExtra interest above the reference rate, based on borrower credit risk
AT1 capitalInstruments that absorb losses while the bank stays a going concern
CKYCCentral database of customer identity details

Exam angle

  • Earlier spread revision gap: three years.
  • Feedback deadline: 20 October 2025.

Test yourself

1. Under RBI's new small business loan guidelines, how often could banks earlier revise the credit-risk spread?

Earlier the spread could be revised only once every three years.

2. RBI now allows banks to count which bonds as Additional Tier 1 (AT1) capital?

Foreign-currency and overseas-rupee bonds can be used as AT1 capital.

3. How many directions did RBI issue in its latest small business lending guidelines, and how many are mandatory?

Seven directions: three mandatory, four open for consultation.

This topic is part of Daily Current Affairs 30 September 2025 (15 topics).

All topics of the dayDay quizSeptember 2025

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