On 18th August 2023, the RBI issued guidelines concerning floating interest rate loans,prompted by “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”. As per the guidelines, lenders are advised to put in place an appropriate policy framework meeting the following requirements for implementation and compliance:

Offer choices to adjust your EMIs, your loan tenure, or a combination of both, or even allow prepayment of your existing loan.

Enable the switch to a fixed interest rate at the time of interest rate reset, per the lender's approved policy.

Disclose all charges involved in switching loans from floating to fixed rates, including any service or administrative fees.

Prevent negative amortisation when extending the loan tenure.

Provide clear, quarterly statements that detail, at a minimum, the principal and interest recovered, remaining EMIs, and the annualized rate of interest or Annual Percentage Rate (APR) for the entire loan tenure.

These guidelines apply to both existing and new loans, aiming to improve communication and offer more flexibility to borrowers.

By entering your key information, like the outstanding principal, current and new interest rates, pending tenure (in months), a total of all other EMIs, and your gross annual income, the tool calculates and presents three tailored output options

This option recalculates your EMI, the total interest payable, and your revised debt-to-income ratio, all while keeping the tenure the same.

This option maintains your current EMI level, adjusting the loan's tenure (in months) accordingly, and provides updated figures for total interest payable and debt-to-income ratio.

This option offers a balanced adjustment of both the EMI and tenure, along with details on total interest and debt-to-income ratio.

The floating rate reset calculator simplifies your decision-making process when faced with the option to adjust your loan's EMI, tenure, or both during an interest rate reset by your lender.

Through RBI's scrutiny and feedback from individuals, it became evident that banks were extending loan durations and unpredictably adjusting EMIs without notifying borrowers. This practice disadvantaged you. Hence, the review addresses these concerns by ensuring more transparent and fair banking practices, protecting your interest and preserving the integrity of monetary policy measures.

This led to a new initiative enhancing loan management transparency, ensuring borrowers are well-informed about changes to their loans, including interest rates and foreclosure charges. This approach empowers borrowers with the information needed for effective financial planning and decision-making, emphasising transparency and borrower empowerment in the financial ecosystem.