class="MsoNormal" style="text-align: justify;">The Reserve Bank of India (RBI) on August 18, 2023, issued a notification regarding the Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans.
The following has been stated namely: -
• In terms of extant instructions of the Reserve Bank of India, regulated entities (REs) have the freedom to offer all categories of advances either on a fixed or floating interest rates basis.
• The REs put in place an appropriate policy framework related to the elongation of loan tenor and/or increase in EMI amount: -
1. At the time of sanction, REs shall clearly communicate to the borrowers about the possible impact of a change in the benchmark interest rate on the loan leading to changes in EMI and/or tenor or both.
2. At the time of reset of interest rates, REs shall provide the option to the borrowers to switch over to a fixed rate as per their Board approved policy.
3. All applicable charges for switching loans from floating to fixed rate and any other service charges/administrative costs incidental to the exercise of the above options shall be transparently disclosed in the sanction letter and also at the time of revision of such charges/costs by the REs from time to time.
4. REs shall ensure that the elongation of tenor in case of a floating rate loan does not result in negative amortisation.
• These instructions would apply, mutatis mutandis, to all equated instalment-based loans of different periodicities.
• REs shall ensure that the above instructions are extended to the existing as well as new loans by December 31, 2023. All existing borrowers shall be sent a communication, through appropriate channels, intimating the options available to them.
[Notification No. RBI/2023-24/55]
