Floating Rate
What Floating Rate means
An interest rate that changes periodically in line with a benchmark rate such as the RBI repo rate or the bank's MCLR. Your EMI or loan tenure adjusts when the benchmark moves.
Example
Your home loan at Repo Rate + 2.5% = 9% automatically drops to 8.75% if RBI reduces the repo rate by 0.25%; conversely a rate hike increases your EMI or extends tenure.
This definition is based on RBI – External Benchmark Rates ↗. We link every figure to its primary source — see our data methodology.
Related interest rate terms
- Base RateThe minimum interest rate set internally by each bank below which it could not lend, introduced by RBI in 2010 and replaced by MCLR in 2016. Existing Base Rate loans may still be active.
- BPLRThe interest rate benchmark used by Indian banks before July 2010, now defunct for new loans. Superseded by the Base Rate, which was itself replaced by MCLR and then RLLR.
- Fixed RateAn interest rate that remains unchanged for the agreed loan tenure, regardless of movements in market benchmark rates. Provides EMI certainty but is typically higher than floating rates.
- MCLRAn internal benchmark rate published monthly by each bank, below which it cannot lend (applicable to loans sanctioned April 2016 – September 2019). It replaced the Base Rate and has itself been replaced by RLLR for new retail loans.
- Repo RateThe short-term interest rate at which RBI lends overnight funds to commercial banks; it is RBI's primary monetary policy tool and the benchmark for all RLLR-linked retail loans since October 2019.
- Reset ClauseA provision in a loan agreement specifying when (monthly, quarterly, or annually) and how the interest rate is revised in response to changes in the benchmark rate.