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The Reserve Bank on Thursday said it will soon allow borrowers to switch to fixed interest rate regime from floating rate. This move is expected to provide relief to borrowers of home, auto and other loans. During the bi-monthly monetary policy, Reserve Bank Governor Shaktikanta Das said the lenders will have to clearly communicate with the borrowers about tenor and EMI.

“The supervisory reviews undertaken by the Reserve Bank and the feedback and references from members of public have revealed several instances of unreasonable elongation of tenor of floating rate loans by lenders without proper consent and communication to the borrowers,” he said.

A proper framework will be set up and all regulated entities will implement it, he said.
“The framework envisages that 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, and proper communication of key information to the borrowers,” he said.
The detailed guidelines in this regard would be issued shortly, he said.

With increasing digitiation, the governor said the country has adopted infrastructure which encourages FinTech companies and startups to create and provide innovative solutions in payments, credit, and other financial activities.
For digital credit delivery, the data required for credit appraisal are available with different entities like Central and State governments, account aggregators, banks, credit information companies, digital identity authorities, etc, he said.
However, he said, they are in separate systems, creating hindrance in frictionless and timely delivery of rule-based lending.

To address this situation, a pilot project for digitalisation of Kisan Credit Card (KCC) loans of less than Rs 1.60 lakh was started in September 2022, he said. The pilot tested end-to-end digitalisation of the lending process in a paperless and hassle-free manner. The KCC pilot is currently underway in select districts of Madhya Pradesh, Tamil Nadu, Karnataka, UP, Maharashtra and the initial results are encouraging.
(With inputs from PTI)