RBI's Major Relief: Home and Auto Loan Borrowers Given Option to Choose Interest Type

10 Aug 2023 , 03:16 PM

The Reserve Bank of India (RBI) is introducing a framework to allow borrowers to switch from floating interest rates to fixed rates, aiming to ease the impact of high interest rates on home, auto, and other loan borrowers. RBI Governor Shaktikanta Das announced this move during a monetary policy update. Under this plan, lenders will need to transparently communicate with borrowers about loan tenure and equated monthly installments (EMIs). 

This initiative comes in response to cases where lenders extended tenures of floating rate loans without proper consent, identified through supervisory reviews and public feedback. The RBI seeks to implement a comprehensive conduct framework applicable to all regulated entities to address these concerns. The framework includes clear communication with borrowers for tenor and EMI resets, options for fixed-rate loans or foreclosure, transparent fee disclosure, and key information provision. Detailed guidelines for this framework will be issued soon.

Governor Das also discussed the RBI’s review of the regulatory framework for Infrastructure Debt Funds (IDFs) to enhance their role in financing the infrastructure sector and harmonize NBFC regulations. This revised framework eliminates the need for IDF sponsors, allows direct lending for Toll Operate Transfer projects, grants access to External Commercial Borrowings (ECBs), and makes tripartite agreements optional for Public-Private Partnership (PPP) projects.

Furthermore, Governor Das highlighted India’s digital progress, with the adoption of digital public infrastructure encouraging FinTech innovation in finance activities. To streamline digital credit delivery, the RBI is piloting the digitalization of Kisan Credit Card (KCC) loans and developing a digital Public Tech Platform through the RBI Innovation Hub. This platform aims to facilitate seamless credit delivery by enabling smooth digital information flow among lenders and stakeholders. Its open architecture and APIs will enable easy connections for financial sector participants, enhancing lending efficiency.