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Corporate Laws Central Ministry of Finance Reserve Bank of India Act, 1934

Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans

18-Aug-2023 | RBI/2023-24/55

Reserve Bank of India (RBI) has issued guidelines pertaining to the reset of floating interest rates on Equated Monthly Installments (EMI)-based personal loans, effective from August 18, 2023. By virtue of the Circular, Regulated entities (REs) are required to establish an appropriate policy framework in accordance with the following stipulations for implementation and adherence: 1. Clear Communication: During loan sanction, REs must transparently convey to borrowers the potential impact of changes in benchmark interest rates on the loan, which could lead to adjustments in EMI and/or tenor, or both. 2. Option for Fixed Rate: At the time of resetting interest rates, REs are obligated to offer borrowers the choice to switch to a fixed interest rate as per their Board-approved policy. The policy should outline the permissible number of times a borrower can switch during the loan's tenor. 3. Borrower Choice: Borrowers should be granted the flexibility to opt for: Enhancement in EMI or elongation of tenor, or a combination of both. Prepayment, either partially or entirely, at any juncture within the loan's tenor. Any foreclosure charges or pre-payment penalties shall adhere to prevailing instructions. 4. Transparent Disclosure: All applicable charges for switching from floating to fixed rates, as well as other service charges or administrative costs tied to the aforementioned options, must be transparently disclosed in the loan sanction letter. Any subsequent revisions to these charges/costs should also be communicated by REs in a clear manner. etc. REs are obligated to extend these instructions to both existing and new loans by December 31, 2023. All existing borrowers should receive communication, through appropriate channels, outlining the available options to them.

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