August 10, 2023: In a move that will help home loan borrowers in India, the Reserve Bank of India (RBI) has decided to usher in greater transparency in the EMI (equated monthly instalment) resetting process by banks in the county. Under the proposed guidelines, banks will have to ensure proper communication of key information to borrowers.
“It is proposed to put in place a transparent framework for reset of interest rates on floating interest loans,” RBI governor Shaktikant Das said while announcing the third bi-monthly policy review on august 10, 2023. These measures would further strengthen consumer protection, he added.
Under the proposed framework, banks will have to inform borrowers at the time of making changes in EMI or loan tenure.
Lenders in India reset home loan interest rates at fixed intervals, primarily pegging it on the RBI’s prevalent repo rate, at which the banking regular lends funds to scheduled banks in the country. As a normal practice, each time the RBI increases the repo rate, banks increase the loan tenure, without sending any communication to the borrower.
The framework will require banks to provide borrowers options for switching to fixed rate loans or foreclosure of loans.
Another usual practice among banks in India is to sanction loans at a floating interest rate unless the borrowers specifically ask for a fixed interest rate. Procedural hazards make it quite cumbersome for borrowers to pre-pay loans based on a fixed interest rate.
Under the proposed norms, lenders will also have to disclose various charges incidental to the exercise of the options. Loans in India attract several fringe charges such as processing fee, administrative charges, technical fee, legal fee, etc.
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An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.
In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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