By B S Reporter
The RBI has announced to introduce a framework to make borrowing easier and transparent for retail customers. It said that going forward borrowers would have flexibility to switch from floating rates to fixed interest rates or paying off loans early.
The central bank has directed banks to ensure greater transparency in the process of resetting floating home loan equated monthly interest (EMIs) rates under the external benchmark-based lending rate mechanism.
The banking regulator said that banks should bring more clarity in their communication with borrowers. They should be offered options to adjust the loan duration or monthly payment amounts. All the extra charges related to these choices should be shared openly, and important information should be communicated clearly to the borrowers.
The regulator said that rules should help borrowers to repay their loans the way they can in case they are facing any difficulty.
RBI to introduce a new framework
To implement this, RBI said that it is proposed to put in place a proper conduct framework to be implemented by all banks 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 central bank added.
The banking regulator said it has conducted supervisory reviews and the feedback it received revealed several instances of elongation of the tenor of floating rate loans by lenders without proper consent and communication to the borrowers.