EMIs to increase under RBI's new rules, big blow to house owners

In yet another blow to the common man as per a TOI report, borrower loan eligibility could drop while banks and finance companies will be forced to hike EMIs for certain home loans when interest rates rise under the RBI's new rules. Banks cannot increase the tenor of EMI-based loans without giving borrowers a choice of either increasing the EMI amount or elongation of the loan tenor, according to a notification issued by the RBI. The notification will apply to all equated instalment-based loans of different periodicities.“At the time of sanction of EMI based floating rate personal loans, REs 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,” Reserve Bank of India (RBI) said in the notification today (August 18).

“However, in respect of EMI based floating rate personal loans, in the wake of rising interest rates, several consumer grievances related to elongation of loan tenor and/or increase in EMI amount, without proper communication with and/or consent of the borrowers have been received,” it added. The RBI has advised REs to put in place an appropriate policy framework meeting the following requirements for implementation and compliance. Further, the central bank also asked banks to provide borrower an option to switch over to a fixed rate as per their Board approved policy, and also specify how many times a borrower is allowed to switch during the tenor of the loan. They should also be given the choice to opt for enhancement in EMI or elongation of tenor or for a combination of both options; and to prepay, either in part or in full, at any point during the tenor of the loan, RBI said in a guidelines. "Levy of foreclosure charges/ pre-payment penalty shall be subject to extant instructions," RBI said in a release. The RE should also disclosed all the applicable charges for switching of loans from floating to fixed rate and any other service charges/ administrative costs. Additionally, at the end of the quarter,  all REs should share or make available a statement which must have details of the recovered principal and interest till date, number of EMIs left and annualized rate of interest / Annual Percentage Rate (APR) for the entire tenor of the loan. The central bank advised all RE's to to keep the statement simple and which can be easily understood by the borrower.