RBI Allows Borrowers to Change Interest Rate

Mumbai: The Reserve Bank of India on Friday asked lenders to provide options to floating rate loan borrowers to either increase Equated Monthly Instalment or tenure or prepay the full amount or a part of it at any point during the tenure or move to fixed-rate interest rate at the time of resetting the loan. The central bank said that at the time of sanction of EMI based floating rate personal loans, regulated entities 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. According to the notification on ‘Reset of Floating Interest Rate on Equated Monthly Instalments based Personal Loans’, at the time of sanction, lenders should clearly communicate to the borrowers about the possible impact of change in benchmark interest rate on the loan leading to changes in EMI and/or tenor or both. Similarly when the RBI cuts rates, banks will have to ask the borrower if he wants a lower EMI or a reduced tenure.” Lenders also have to make accessible to the borrowers, through appropriate channels, a statement at the end of each quarter which shall at the minimum, enumerate the principal and interest recovered till date, EMI amount, number of EMIs left and annualized rate of interest / Annual Percentage Rate for the entire tenor of the loan.