MUMBAI: In a bid to bring more transparency into the equated monthly instalments (EMI) based floating interest loans by banks, the Reserve Bank of India( RBI) will implement a framework for reset of interest rates on floating interest loans.
The decision was taken after the apex bank was apprised of many instances wherein banks elongated the tenor of loans without consent or prior communication to the borrowers.
"The supervisory reviews undertaken by the Reserve Bank and the feedback and references from members of the public have revealed several instances of unreasonable elongation of the tenor of floating interest rate loans by lenders without proper consent and communication to the borrowers," the RBI said in the monetary policy statement.
"To address this issue, it is proposed to put in place a proper conduct framework to be implemented by all the REs to address the issues faced by the borrowers. The framework envisages the lenders should clearly communicate with the borrowers for resetting the tenor and or EMI, provide options of switching to fixed-rate loans or foreclosure of loans, transparent disclosure of various charges incidental to the exercise of these options, or proper communication of key information to the borrowers," the RBI added.
The transparent framework will require Regulated Entities to clearly communicate with borrowers for resetting the tenor and/or EMI; provide options for switching to fixed-rate loans or foreclosure of loans; disclose various charges incidental to the exercise of the options; and ensure proper communication of key information to borrowers. These measures will further strengthen consumer protection, it stated.
The apex bank kept the repo rate unchanged in its August monetary policy. The RBI Governor Shaktikanta Das said that the Monetary Policy Committee (MPC) has unanimously decided to keep the repo rate unchanged at 6.5 per cent with the preparedness to act should the situation so warrant.