RBI Raises Floating Rate Bond 2034 Interest Rate To 7.26%; ₹5 Lakh Investment To Earn ₹18,150 In Six Months

The Reserve Bank of India (RBI) has raised the interest rate on Government of India Floating Rate Bond 2034 (FRB 2034) to 7.26% per annum for the six-month period from October 30, 2026, to April 29, 2027. The revised coupon is 0.81 percentage points higher than the previous rate of 6.45%.

At the new rate, an investor holding bonds with a face value of ₹5 lakh for the entire six-month period would earn approximately ₹18,150 in interest before tax. For a ₹1 lakh investment, the corresponding interest would be ₹3,630.

The RBI announced the revised rate on October 29. The coupon applies to the specified six-month period and will be reset again according to the bond's interest-rate formula.

Floating Rate Bond 2034: How much interest will investors earn?

The interest payable depends on the face value of the bonds held and the applicable coupon rate. At 7.26% per annum, the estimated interest for a six-month period is:

These are estimates before tax, assuming the bonds are held for the entire six-month interest period and the face value remains unchanged. The actual return for a buyer purchasing bonds in the secondary market may differ depending on the purchase price.

How is the RBI Floating Rate Bond interest rate calculated?

The coupon on FRB 2034 is linked to the average Weighted Average Yield (WAY) of the last three auctions of 182-day Treasury Bills preceding the rate-fixing date.

The RBI adds a fixed spread of 0.98 percentage points to this average to arrive at the applicable interest rate.

The bond's coupon is therefore not fixed for its entire tenure. It is reset every six months, meaning future interest payments may rise or fall depending on Treasury Bill yields.

Is interest from Floating Rate Bonds taxable?

Interest earned on Government of India Floating Rate Bonds is taxable according to the investor's applicable income-tax slab. The interest is added to the investor's taxable income, and tax deduction at source may apply under prevailing rules.

Consequently, the ₹18,150 estimated interest on a ₹5 lakh holding is a pre-tax amount. The amount retained after tax will depend on the investor's tax slab and applicable deductions or exemptions.

How can retail investors buy Government Floating Rate Bonds?

Retail investors can access eligible Government of India securities through the RBI Retail Direct platform. Existing bonds can also be available through the secondary market.

Investors should check the bond's prevailing market price, accrued interest and remaining maturity before buying. If a bond is purchased above or below its face value, the effective return will differ from the coupon rate.

The 7.26% rate is applicable only for the October 30, 2026, to April 29, 2027 interest period. Investors should not assume that the same coupon will continue throughout the bond's remaining tenure.

Also Read - Q2 Results Next Week: ITC, Bajaj Finserv, Apollo Hospitals, Dabur, BSE, Hindalco Among Stocks To Watch