RBI spells out new norms to enhance transparency in pricing of credit

RBI spells out new norms to enhance transparency in pricing of credit

The RBI has sought to protect bank borrowers by directing banks to observe the following additional instructions. In terms of RBI notification the new guidelines comes into force from APRIL 1, 2015. This is in order to give banks sufficient times to comply with its instructions.

(a) In Bank’s Website:

1. Banks should display on their website the interest rate range of contracted loans for the past quarter for different categories of advances granted to individual borrowers along with mean interest rates for such loans.
2. The total fees and charges applicable on various types of loans to individual borrower should be disclosed at the time of processing of loan as well as displayed on the website of banks for transparency and comparability and to facilitate informed decision making by customers.

• Banks should publish Annual Percentage Rate (APR) or such similar other arrangement of representing the total cost of credit on a loan to an individual borrower on their websites so as to allow customers to compare the costs associated with borrowing across products and/ or lenders.

(b) Key Statement/ Fact Sheet:

According to new norms banks should provide a clear, concise, one page key fact statement or fact sheet to all individual borrowers at every stage of loan processing. This rule applies in case any changes in terms and conditions of sanction. Banks may include the same as summary box to be displayed in the credit agreement.

The prescribed format of RBI for key statement contains the following details for each specific loan product of the bank.

1. Loan amount, 2. Loan term, 3.Interest type (fixed or floating), 4. Interest chargeable 4

4(a) in case of floating rate loans i.e. ……..%Base rate +…………..

4 (b) in case of fixed rate loans……………%,

5. Date of reset of interest, 6. Mode of communication of changes in interest rates, 7. Fee payable

(a)Fee payable on application (required to specify all type of fee to be charged),(b)during the term of the loan required to specify all type of fee to be charged),(c)on foreclosure( required to specify all type of fee to be charged),(d) Fee refundable if loan not sanctioned/disbursed.(e)Conversion charges for switching from floating to fixed interest and vice-versa, (f) penalty for delayed payment.

8. EMI payable, 9.Details of security/collateral obtained, 10.Date on which annual outstanding balance statement will be issued. 11. Date on which annual outstanding balance statement will be issued