RBI has given great relief to customers of banks and other financial institutions. The Reserve Bank has given customers complete freedom to choose fixed or floating interest rates . This will greatly benefit customers against who are paying EMIs. The Reserve Bank has said that at the time of approval of EMI-based floating rate loans, banks will have to keep in mind the borrower’s ability to repay the loan. So that there is enough room for making changes in the tenure or EMI of the loan . RBI has received complaints that after increase in interest rates, banks increase the duration or EMI without informing customers.
According to the instructions of the Reserve Bank at the time of loan approval itself, the bank will have to clearly inform the borrowerabout what could be the impact of changes in interest rates on the EMI and tenure of the loan.
Similarly, when there are changes in interest rates, complete details will be given about any kind of changes that the bank will make in EMI or tenure of the loan or both.
Banks will have to give borrowers the option to switch between fixed or floating rates whenever interest rate changes. Customers will be informed at the time of loan approval how many times they can make such a change during the entire tenure of the loan. And the charges for switching from fixed to floating rate or vice versa. The bank will have to provide such information transparently in the sanction letter. Institutions will also have to properly inform borrowers in case of making any revisions. Customers will also have to be given the option..of choosing higher EMI or longer tenure or both. They can make partial or full pre-payment of the loan at any time they want.
The Bank will also give a statement to the borrower at the end of every quarter. It will mention the recovery of principal and interest, number of EMIs left and what will be the annual interest on the remaining amount of loan.
Ashwini Rana, founder of Voice of Banking, has said, that this step by the Reserve Bank will provide a lot of relief to customers who are troubled by increasing interest rates. Banks will now ask customers for their choice whether they want to keep a fixed rate or want a floating rate. Not only this, customers can change this option at any time in between. The Reserve Bank has advised banks to ensure that these rules are implemented on all existing and new loans by December 31, 2023. The new rules on retail loans will apply to consumer loans, education loans, loans taken for property construction such as home loans. Interest rates are usually floating for home loans while interest rates are fixed for auto and personal loans.
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