What do the guidelines say?
RBI said all applicable charges for switching loans from floating to fixed rate and any other service charges/administrative costs incidental to the exercise of the options shall be transparently disclosed in the sanction letter and also at the time of revision of such charges/costs by the REs from time to time.
"At the time of reset of interest rates, REs shall provide the option to the
borrowers to switch over to a fixed rate as per their board-approved policy.
The policy, inter alia, may also specify the number of times a borrower will
be allowed to switch during the tenure of the loan. The borrowers shall also be given the choice to opt for (i) enhancement in EMI or elongation of tenor or for a combination of both options; and, (ii) to prepay, either in part or in full, at any point during the tenor of the loan. Levy of foreclosure charges/ pre-payment penalty shall be subject to extant instructions," RBI said.
The central bank further asked REs to ensure that the elongation of tenor in case of a floating rate loan does not result in negative amortisation.
"REs shall share/make accessible to the borrowers, through appropriate
channels, a statement at the end of each quarter which shall be at the
minimum, enumerate the principal and interest recovered to date, EMI
amount, number of EMIs left, and annualized rate of interest/Annual
Percentage Rate (APR) for the entire tenor of the loan. The REs shall
ensure that the statements are simple and easily understood by the
borrower," it said.
RBI further asked REs to ensure that these instructions are extended to the existing as well as new loans suitably by December 31, 2023. All existing borrowers shall be sent a communication, through appropriate channels, intimating the options available to them.