The Reserve Bank of India (RBI) on Friday asked banks and other lenders to provide individual borrowers an option to switch to a fixed rate at the time of reset of interest rates. It said that at the time of reset of interest rates, regulated entities (REs) should provide an option to borrowers to switch to a fixed rate as per their board-approved policy.
The Reserve Bank of India (RBI) on Friday asked banks and other lenders to provide individual borrowers an option to switch to a fixed rate at the time of reset of interest rates. In a fixed interest rate regime, the interest rate on the loan remains the same throughout the tenure, thus the EMI remains the same.
However, under the floating interest rate regime, the interest rates on the loan keep on changing depending on the repo rate revision of RBI during the entire tenure, thereby changing the EMI. What is the whole news, let’s know.
RBI asked to prepare appropriate policy framework
In a notification given by RBI, in respect of EMI-based floating rate personal loans, it has been said that in view of rising interest rates, many consumers concerned regarding extension of loan tenure and/or increase in EMI amount without proper communication and/or consent There are complaints. To address these concerns, the RBI has asked the entities regulated by it to put in place an appropriate policy framework.
Borrowers will get instant information
RBI said that at the time of sanction, RES shall clearly inform the borrowers about the likely impact of change in the benchmark interest rate on the loan, leading to change in EMI and/or tenor or both. Thereafter, any increase in EMI/tenure or both due to the above shall be intimated to the borrower through proper channels immediately.
It further added that at the time of reset of interest rates, regulated entities (REs) should provide an option to borrowers to switch to a fixed rate as per their board-approved policy.
RBI gave these instructions
RBI said the policy should specify the number of times the borrower would be allowed to switch during the loan tenure. Borrowers should also be given the option to opt for an increase in EMI or extension of tenure or a combination of both. They should also be given the option to prepay, partly or fully, at any time during the tenure of the loan.
