RBI to issue norms on loan resets to boost transparency

livemint.com:

MUMBAI : The Reserve Bank of India (RBI) on Thursday said it would set rules to enhance transparency in interest rate and tenor resets for floating loans, an outcome of home-loan repayment periods being extended to as long as 50 years in certain cases. After RBI started raising the repo rate in May last year, home-loan borrowers, most of whose loans are pegged to external benchmarks like the repo rate, had to substantially increase their monthly repayments or extend their repayment tenor or a combination of both. As Mint reported in March, these extended loan tenors resulted in certain borrowers being obligated to make payments well into their 70s and 80s.

Through supervisory reviews and feedback from the public, RBI on Thursday said it has come across several instances of unreasonable elongation of the tenor of floating-rate loans without proper consent and communication. To address this, the regulator intends to put in place a conduct framework for lenders to address issues faced by borrowers. Under the framework, lenders should clearly communicate with the borrowers for resetting the tenor and/or equated monthly instalment (EMI) and provide options for switching to fixed-rate loans or foreclosure of loans.

The norms would also call for transparent disclosure of various charges. Asked how RBI would define a tenor elongation as unreasonable, governor Shaktikanta Das said it is something banks will have to assess, taking into account the payment capacity of the borrower. “Banks will also have to take into consideration the age factor.