RBI on Home & Car Loan: RBI issued new guidelines related to loan, there will be option to change tenure and EMI

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RBI on Home & Car Loan: If you have taken car, home or any other loan, then this news is very useful for you. The Reserve Bank of India has banned banks and non-banking finance companies (NBFCs).NBFCs) has issued a new guideline on the option of increasing the borrower EMI, changing the tenure and choosing a loan at fixed rates during the loan reset. The Reserve Bank of India (RBI) has asked banks and other financial institutions to provide the option of choosing a fixed (fixed) rate of interest to customers who have taken loans while resetting interest rates. RBI has taken this step to save people from getting trapped in debt trap amid rising interest rates.

Bank will have to take consent to increase interest

After the start of the Russia-Ukraine war, the central bank started increasing the benchmark loan rate (repo) from May 2022 to curb inflation. Due to this the interest rates started increasing. This had a negative impact on the loan accounts of the customers. From May 2022, the central bank had increased the repo rate by two and a half percent. Due to this, the monthly installment (EMI) of the loan was reduced from the interest, due to which the principal amount increased continuously. The central bank said in a notification issued on Friday that it has been observed that the loan tenure or monthly installment (EMI) is increased when the interest rate increases and the customers are not properly informed about it nor His consent is taken. To overcome this concern, the Reserve Bank has asked the units coming under its regulation to make a proper policy framework.

Customers will have to be clearly told the status of change

The Reserve Bank said that at the time of loan approval, banks should clearly tell their customers that in case of change in the standard interest rate, what could be the effect on EMI or loan tenure. The extension of EMI or loan tenure should be intimated to the customer immediately through proper channel. The central bank said that while fixing the interest rates afresh, banks should give the option to the customers to choose the fixed interest rate. Apart from this, under the policy, customers should also be told how many times they will get the opportunity to choose this option during the tenure of the loan. Also, loan borrowers should be given the option of extending EMI or loan period or both. It has been said in the notification that customers should be allowed to repay the loan in full or in part ahead of time. This facility should be available to them at any time during the tenure of the loan.

Decision taken after monetary policy review

In the monetary policy review presented last week, the RBI had talked about allowing borrowers to opt for a fixed interest rate from a variable (floating) interest rate. Reserve Bank Governor Shaktikanta Das had said that a new structure is being prepared for this. Under this, banks will have to give clear information about the loan tenure and monthly installment (EMI) to the borrowers. Let us tell you that this guideline was issued by the country’s apex bank to other banks on August 18 this month.

What does RBI say

• If penalty has been charged on any loan account, it should be in the form of penal charge. It should not be in the form of penal interest, which gets added to the loan interest.

• Banks and lending institutions are not permitted to introduce any additional component charged on interest.

• Regular Entities will have to frame a Board approved policy on Penal Charges or Equalization Charges on Loans (by whatever name called).

• The amount of penal charge being levied should be reasonable and commensurate with the non-compliance of the loan account. Banks cannot discriminate against any particular loan/product category.

• RBI has said that the penalty imposed on personal loan borrowers cannot be more than the penalty imposed on non-individual borrowers.

• Banks will have to clearly inform the customers about the quantum of penal charge and the reason for levying it in the loan agreement. Apart from this, interest rates and services will also be shown on the website of the banks.

• Any reminder sent to customers regarding non-compliance would be required to mention ‘penalty’.

• These instructions will be applicable from 1 January 2024. Banks may make necessary changes in their policy framework and implement the instructions in respect of all new loans availed/renewed from the effective date.

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