New RBI rules for reset of EMI-based loans by regulated entities: Key points

financialexpress.com:

Regulated Entities (REs) /banks cannot increase the tenor of EMI-based loans without giving borrowers a choice of either increasing the EMI amount or elongation of the loan tenor, according to a notification issued by the RBI. The notification will apply to all equated instalment-based loans of different periodicities.

“At the time of sanction of EMI based floating rate personal loans, REs are required to take into account the repayment capacity of borrowers to ensure that adequate headroom/ margin is available for elongation of tenor and/ or increase in EMI, in the scenario of possible increase in the external benchmark rate during the tenor of the loan,” Reserve Bank of India (RBI) said in the notification today (August 18).

“However, in respect of EMI based floating rate personal loans, in the wake of rising interest rates, several consumer grievances related to elongation of loan tenor and/or increase in EMI amount, without proper communication with and/or consent of the borrowers have been received,” it added.

Also Read: Banks are increasing Home Loan EMI tenors without even asking borrowers. RBI decides to stop them

The RBI has advised REs to put in place an appropriate policy framework meeting the following requirements for implementation and compliance:

The RBI said that apart from equated monthly instalment loans, the above instructions would also apply to all equated instalment-based loans of different periodicities.

“Apart from the equated monthly instalment loans, these instructions would also apply, mutatis mutandis, to all equated instalment based loans of different periodicities,” RBI said.

“In case of loans linked to an external benchmark under the External Benchmark Lending Rate (EBLR) regime, the