Resetting of floating rate home loan EMIs to get more transparent, option to switch to fixed rate soon: RBI

economictimes.indiatimes.com:

As per the RBI statement: It is proposed to put in place a transparent framework for reset of interest rates on floating interest loans. The framework will require Regulated Entities to (i) clearly communicate with borrowers for resetting the tenor and/or EMI; (ii) provide options for switching to fixed rate loans or foreclosure of loans; (iii) disclose various charges incidental to the exercise of the options; and (iv) ensure proper communication of key information to borrowers.

These measures will further strengthen consumer protection. The RBI Statement further said that: 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.

To address the issue, it is proposed to put in place a proper conduct framework to be implemented by all Regulated Entities to address the issues faced by the borrowers. 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.

The detailed guidelines in this regard shall be issued shortly. The RBI has introduced the external benchmarking system for home loans from October 1, 2019.

Under the new external benchmark system, all floating rate based loans were required to be linked to an external benchmark. Initially when external benchmark system was introduced, the RBI allowed banks to reset the EMI once