RBI New Rules on Bank Loan and CIBIL Score EMI and Penalty to Reduce Know Details

RBI Loan Rules: The Reserve Bank of India (RBI) has implemented several landmark measures to ensure financial security and transparency for common borrowers. From November 2025, these rules have become extremely relevant in the banking system. Especially for those worried about Home Loan, Personal Loan, or Car Loan EMIs and CIBIL Scores, these new guidelines bring significant relief. In this report, we will discuss in detail how these changes will reduce the burden on your pocket and simplify the banking process.

New Rules Regarding CIBIL Score

The CIBIL score or credit score plays a crucial role in obtaining a loan. According to RBI guidelines, major changes have been introduced in the operations of Credit Information Companies effective from November 20, 2025.

• Faster Updates: Previously, the CIBIL score was updated only once a month. However, under the new rules, all banks and lending institutions must submit customer data to credit bureaus twice a month—on the 15th and the last day of every month. As a result, if you clear any outstanding dues, it will reflect in your score much faster, helping improve your credit score quicker.
• Transparency & Reason for Rejection: Earlier, if a loan application was rejected, banks often evaded the topic by citing ‘Internal Policy’. Now, if a bank rejects your loan application, they are mandatorily required to provide a specific and clear reason to you.
• SMS & Email Alerts: Whenever any bank or financial institution checks your credit report, you will immediately receive an alert via SMS and Email on your registered contact details. This will help you detect if someone is checking your CIBIL score or credit history without your knowledge, thereby preventing potential fraud.
• Free Credit Report: Every customer will now have the opportunity to download their Full Credit Report once a year completely free of charge.
• Prompt Complaint Resolution: If there is any error in your CIBIL report and you file a complaint, it must be resolved within 30 days. If the resolution is not provided within this timeframe, the concerned institution will have to pay a penalty of Rs 100 per day to the customer.

Transparency in EMI and Interest Rates

Fluctuations in interest rates are a major concern for customers who have taken loans on floating rates. To address this, RBI has issued strict directives.

• Option to Switch to Fixed Rate: Previously, when interest rates rose, banks would arbitrarily increase the EMI or loan tenure. Under the new rules, when interest rates change, banks must provide customers with the option to switch their loan to a Fixed Rate.
• Customer’s Decision is Final: Whether the EMI will increase or the loan tenure will be extended due to a hike in interest rates—the right to make this decision now lies entirely with the customer. Banks cannot impose any decision on their own.
• Loan Foreclosure or Pre-payment: In the case of personal loans or small business loans, customers often had to pay hefty charges to repay the loan early. As per the July 2025 guidelines, significant relaxation has been brought to the rules regarding pre-payment charges when switching from floating to fixed rates or foreclosing a loan. This will help customers transfer loans to lower interest rates easily.

Changes in Late Payment or Penalty Charges

To reduce the unfair debt burden on borrowers, rules regarding penalties for late payment of installments have also been changed.

• Penal Charge, Not Interest: Earlier, if an installment was delayed, banks would charge ‘Penal Interest’, which was added to the principal amount of the loan, and interest was charged on top of it. Under the new rules, banks can only levy a specific ‘Penal Charge’.
• No Interest on Interest: The penalty amount cannot be added to the principal loan amount. This means charging interest or compound interest on the penalty amount is strictly prohibited.
• Reasonable Penalty: The penalty amount or penal charge must be reasonable. Discriminatory practices or different rules for different customers for the same type of loan are not allowed.

These public-interest measures by the RBI will certainly help protect common people from debt traps and assist them in organizing their financial planning. Faster updates of CIBIL scores and transparency in penalty charges will further boost customer confidence in the banking system.

Note: This report is for informational purposes only. Before making any financial decision or taking a loan, please consult the bank’s official website or a financial expert.