RBI Small Business Loan Norms: Spread Reset, Gold Credit and AT1 Bonds
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
| Term | Meaning |
|---|---|
| Spread | Extra interest above the reference rate, based on borrower credit risk |
| AT1 capital | Instruments that absorb losses while the bank stays a going concern |
| CKYC | Central database of customer identity details |
Exam angle
- Earlier spread revision gap: three years.
- Feedback deadline: 20 October 2025.