RBI on Thursday advised all the regulated entities (Res) like banks and NBFCs (REs) that at the time of sanction, they shall clearly communicate to the borrowers about the possible impact of change in the benchmark interest rate on the loan leading to changes in EMI and/or tenor or both. Successively, any increase in the EMI/ tenor or both on account of the above shall be communicated to the borrower immediately through appropriate channels.
They shall also provide the option to the borrowers to switch over to a fixed rate at the time of reset of interest rates. Their Board approved policy, inter alia, may also specify the number of times a borrower will be allowed to switch during the tenor of the loan, it said.
The Central Bank further directed the REs including banks that the borrowers shall also be given the choice to opt for (i) enhancement in EMI or elongation of tenor or for a combination of both options; and, (ii) to prepay, either in part or in full, at any point during the tenor of the loan. Levy of foreclosure charges/ pre-payment penalty shall be subject to extant instructions. Lenders shall also ensure that the elongation of tenor in case of a floating rate loan does not result in negative amortisation.
“All applicable charges for switching of loans from floating to fixed rate and any other service charges/ administrative costs incidental to the exercise of the above options shall be transparently disclosed in the sanction letter and also at the time of revision of such charges/ costs by the REs from time to time” it added.
According to the notification, all applicable charges for switching loans from floating to fixed rate and any other service charges/ administrative costs incidental to the exercise of the above options shall be transparently disclosed in the sanction letter and also at the time of revision of such charges/ costs by the REs from time to time.
“REs shall share/make accessible to the borrowers, through appropriate channels, a statement at the end of each quarter which shall at the minimum, enumerate the principal and interest recovered till date, EMI amount, number of EMIs left and annualized rate of interest / Annual Percentage Rate (APR) for the entire tenor of the loan. The REs shall ensure that the statements are simple and easily understood by the borrower”, said RBI.
The above instructions are applicable to all categories of equated installment-based loans of different periodicities. Also, instructions in this regard are applicable to the existing as well as new loans suitably by December 31, 2023.
All existing borrowers shall be sent a communication, through appropriate channels, intimating the options available to them, said RBI.
In the case of loans linked to an external benchmark under the External Benchmark Lending Rate (EBLR) regime, the banks are asked to follow extant instructions and also put in place adequate information systems to monitor the transmission of changes in the benchmark rate to the lending rate.