RBI issues FAQs to clarify its circular on Reset of Floating Interest Rate on Equated Monthly installments based Personal Loans

The RBI on Friday issued a set of FAQs to clarify its circular on 'Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans. The circular will be applicable to the existing borrowers. The regulated entities or REs have been advised to communicate to the borrowers the impact of interest rate reset on EMI, in a floating rate personal loans, both at the time of sanction as well as during the tenure of the loan. In this context, Communications to borrowers envisaged in the circular are: (a) at the time of sanction: Annualised rate of interest/ Annual Percentage Rate (APR), as applicable, shall be disclosed in the Key Fact Statement (KFS) and the loan agreement. (b) During the tenure of the loan: Subsequently, any increase in the EMI/tenor on account of the external benchmark rate shall be communicated; and Quarterly statements shall be provided disclosing at the minimum, the principal and interest recovered till date, EMI amount, number of EMIs left and annualized rate of interest for the tenor of the loan.

During the tenure of the loan: Subsequently, any increase in the EMI/tenor on account of the external benchmark rate shall be communicated; and Quarterly statements shall be provided disclosing at the minimum, the principal and interest recovered till date, EMI amount, number of EMIs left and annualised rate of interest for the tenor of the loan. REs (regulated entities) have been advised to intimate the different options available to address the increase in EMI in a rising interest rate scenario. REs have to mandatorily offer fixed interest rate product in all equated installment based personal loan categories. As stated in paragraph 2 (ii) of the circular, REs shall provide the option to the borrowers to switch over to a fixed rate as per their Board approved policy at the time of reset of interest rates. Once the customer has exercised option to switch over from floating interest rate loan to a fixed interest rate loan, the RE is required to specify the number of times a borrower will be allowed to exercise the switch option during the tenor of the loan under its Board approved policy.

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