The Reserve Bank of India raised the annual interest rate on the Floating Rate Bond 2034 to 7.26 per cent from 6.45 per cent. This change, announced on October 29, 2026, applies from October 30, 2026, to April 29, 2027. Investors will get more money during this six-month period.
Investors holding the Government of India Floating Rate Bond 2034 (FRB 2034) will earn higher interest over the next six months after the Reserve Bank of India (RBI) raised its annual interest rate to 7.26 per cent from 6.45 per cent.
The revised rate, announced by the RBI in a press release dated October 29, 2026, will apply from October 30, 2026, to April 29, 2027.
The increase of 81 basis points (bps) will raise the interest income of existing investors during this period.
The bond pays interest every six months, making the revision relevant for investors looking for regular income from government securities. However, the higher rate will apply only for the current interest period. The coupon will be reviewed again after April 29, 2027, based on the prevailing interest rate formula.
How much additional interest will investors earn?
The increase in the interest rate means investors will receive a higher payout for the next six months, provided they hold the bond for the entire period.
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For every Rs 1 lakh invested at face value, the approximate six-month interest will increase from Rs 3,225 to Rs 3,630. This translates into an additional Rs 405 before tax.
The difference becomes more significant for larger investments.
Rs 1 lakh investment: Additional interest of around Rs 405.
Rs 5 lakh investment: Additional interest of around Rs 2,025.
Rs 10 lakh investment: Additional interest of around Rs 4,050.
These calculations assume that the investor holds the full face value throughout the six-month period. The actual amount received may differ depending on the investment amount, purchase price and holding period.
Interest earned on these bonds is taxable according to the investor's applicable income tax slab. Therefore, the post-tax return will be lower.
How is the interest rate on FRB 2034 calculated?
Unlike conventional government bonds that offer a fixed coupon throughout their tenure, floating rate bonds have interest rates that are periodically revised.
The RBI determines the interest rate on FRB 2034 using the average Weighted Average Yield (WAY) of the last three auctions of 182-day Treasury Bills, along with a fixed spread of 0.98 percentage points.
For the current six-month period, this calculation has resulted in an annual interest rate of 7.26 per cent.
The previous rate, applicable from April 30 to October 29, 2026, was 6.45 per cent.
The floating rate mechanism allows the bond's interest income to adjust to changes in short-term interest rates. When Treasury Bill yields rise, the bond's coupon can increase at the next reset. Conversely, a decline in yields can lead to a lower interest rate.
This makes floating rate bonds different from fixed-rate government securities, where the coupon generally remains unchanged throughout the investment period.
Should investors consider FRB 2034?
The latest revision improves the interest income for existing investors and may make the bond relevant for those seeking relatively predictable income over the next six months.
However, investors should consider a few factors before investing.
Sovereign backing: FRB 2034 is a Government of India security. Its principal and interest payments are backed by the government, making it different from corporate bonds and bank fixed deposits.
Floating returns: The current 7.26 per cent rate is not guaranteed for the remaining tenure of the bond. It will be reset periodically, depending on the prescribed formula. Investors should not assume that the current coupon will continue until 2034.
Tax liability: Interest income is taxable at the investor's applicable income tax slab rate. Investors in higher tax brackets may earn lower post-tax returns.
Liquidity and market price: Investors can access the bond through the RBI Retail Direct platform and the secondary market. However, those purchasing it in the secondary market should check its prevailing market price and yield. Selling before maturity may result in a capital gain or loss, depending on the purchase price and market conditions.
What should investors keep in mind?
The increase to 7.26 per cent is beneficial for existing FRB 2034 holders because it raises their interest income for the next six months. However, the benefit should be assessed in the context of taxation, future rate resets and the investor's investment horizon.
Those considering fresh investments should compare the bond's current yield with bank fixed deposits, other government securities and alternative fixed-income products. The decision should also account for liquidity requirements and the possibility of lower interest rates at future resets.
The bond can be considered by investors seeking government-backed fixed-income exposure with a floating interest rate, but the latest coupon alone should not determine an investment decision.