RBI: Necessary to pay fixed interest rate in every category of personal loan

New Delhi| Banks and financial institutions will have to provide loan facility at fixed interest rates in monthly installments of all categories of personal loans. This rule will be applicable to all types of personal loans, irrespective of whether the interest rate is linked to an external benchmark or an internal benchmark. RBI said, at the time of sanction of loans, it is necessary to clearly provide the annual percentage rate of interest, as applicable, in the loan agreement.

The Reserve Bank of India (RBI) said in a circular issued, whenever and in whatever way banks or financial institutions are doing it, it is necessary to inform the customer about it. During the loan tenure, customers should be informed about any increase in EMI/period due to external benchmark rate. The quarterly statement should disclose the minimum, principal and interest received so far, the number of remaining EMIs and the annual rate of interest for the tenure of the loan.

According to RBI, registered institutions will have to provide the option to borrowers to change the interest rates at a fixed rate as per the policy approved by their board at the time of reset. In August 2023 the RBI had directed banks to allow individual borrowers paying off loans through EMIs to opt for a fixed interest rate system or extension of loan tenure.

In order to curb inflation after the Russia-Ukraine war, the central bank had increased the repo rate by 2.50 per cent to 6.5 per cent in several instances. This interest rate has been stable at the same level for almost two years. This increase resulted in a large number of borrowers facing problems. Due to this, their loan tenure increased or the installment amount increased.