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The Reserve Bank on Friday asked banks and other lenders to provide borrowers an option of switching to a fixed rate at the time of reset of interest rates.
The central bank issued a notification in this regard. It said several consumer grievances have been received on EMI tenure getting longer after the revision in floating rates. The EMI amount also gets bigger or smaller without much information from the banks.
To address these concerns, RBI has asked entities regulated by it to put in place an appropriate policy framework.
“At the time of sanction, REs shall clearly communicate to the borrowers about the possible impact of change in benchmark interest rate on the loan leading to changes in EMI and/or tenor or both. Subsequently, any increase in the EMI/ tenor or both on account of the above shall be communicated to the borrower immediately through appropriate channels,” RBI said.
It further said that at the time of reset of interest rates, Regulated Entities (REs) should provide an option to borrowers to switch over to a fixed rate as per their board-approved policy.
The policy, RBI added should specify the number of times a borrower will be allowed to switch during the tenor of the loan.
Borrowers should also be given a choice to opt for enhancement in EMI or elongation of tenor or for a combination of both options.
They should also be given an option to prepay, either in part or in full, at any point during the tenor of the loan.

The central bank in its bi-monthly policy review earlier in August had decided to allow borrowers to switch to fixed rate tenures. It had also taken other measures such as increasing the limit of UPI Lite.