A one per cent reduction on ₹10 crore of debt is ₹10 lakh a year, every year, for no additional work and no additional risk. It is the cheapest money most businesses will ever find.
Almost nobody goes looking for it, because renegotiating feels confrontational and because the rate on the sanction letter feels fixed. It is not.
1. Find out what you are actually paying
Start with the arithmetic, not the conversation. Take every facility you have — term loan, cash credit, equipment finance, whatever sits with the NBFC — and write down the outstanding, the rate, and the annual interest for each.
Two things usually surface. One facility is priced far above the rest, and the weighted average is higher than the number you carry in your head.
2. Check whether your loan is linked to an external benchmark
Since October 2019, banks have been required to link new floating-rate loans to micro and small enterprises to an external benchmark — most commonly the RBI repo rate. When the repo moves, your rate is supposed to move with it.
Older loans may still sit on MCLR or, worse, on the legacy base rate. Those move slowly and reset on the bank's terms rather than the market's. If your facility is still on an older regime, ask to be switched. Banks do not do this on their own.
Ask directly: "Is this facility linked to an external benchmark or to MCLR, and what is the spread over the benchmark?" The spread is the part that is negotiable.
3. Attack the spread, not the benchmark
You cannot argue with the repo rate. You can argue with the margin your bank adds on top of it, and that margin is set by your internal credit rating at that bank.
That rating improves when your numbers do — and the bank does not automatically re-rate you. If your turnover has grown, your debt-equity has improved, or you have cleared a facility since the last sanction, ask for a review. A one-notch upgrade often carries 25 to 50 basis points with it.
4. Get an external credit rating if your size justifies it
For larger exposures, a rating from a recognised agency directly reduces the risk weight a bank must carry against your loan. Less capital blocked means the bank can price you lower and still earn the same return.
The rating costs money and takes a few weeks. Above roughly ₹10 crore of exposure, it usually pays for itself in the first year.
5. Improve the security cover
Rate follows risk. If you can increase the collateral cover, add a guarantee, or bring a facility under CGTMSE, the bank's loss-given-default falls and the price should follow.
This also works in reverse and is worth knowing: if your security has appreciated since it was charged — property usually has — a fresh valuation can improve your cover ratio without you offering anything new.
6. Get a written offer from another lender
This is the lever that actually moves the number.
Approach two other banks and ask for an in-principle takeover offer on your existing facilities. Banks compete hard for good accounts they can lift from a competitor — takeover is one of the few ways a branch grows its book quickly, and there are usually internal incentives attached to it.
With a written offer in hand, go back to your existing bank. Most will match or come close, because losing a performing account costs them more than the margin they are giving up. If they do not match, you now have somewhere to go.
Two things to check before you move: the foreclosure or prepayment charge on the existing facility, and the processing fee, legal and valuation costs on the new one. On floating-rate loans to individuals and to micro and small enterprises, foreclosure charges are restricted — but read your own sanction letter rather than assuming.
What this is worth
| Debt outstanding | Saving at 1% lower | Over five years |
|---|---|---|
| ₹5 crore | ₹5 lakh a year | ₹25 lakh |
| ₹10 crore | ₹10 lakh a year | ₹50 lakh |
| ₹25 crore | ₹25 lakh a year | ₹1.25 crore |
No new sales required. No new risk. Just a conversation most businesses never have, with the numbers prepared in advance.
One caution
Do not chase rate at the cost of the relationship that will matter when you need something urgently — a temporary overdraft, a quick LC, a deferment in a bad quarter. The right outcome is usually a repriced facility at the same bank, not a move. Use the offer as leverage; use the move only if they will not engage at all.