Intolerance of economic crimes is not unique to India; Bernard Madoff the mastermind of the largest known Ponzi scheme, worth an estimated $18 billion, was sentenced by a US court to 150 years in prison, making people wonder if financial fraud was worse than violent crimes like rape and murder.
Home loan customers can now switch between the fixed and flexible rates of interest during the tenure as the Reserve Bank of India (RBI) asked lenders to offer the borrowers under the EBLR regime an option to switch to fixed-rate home loans whenever they want.
The central bank asked banks to be more transparent in resetting interest rates and EMIs of floating-rate home loans under the external benchmark-based lending rate (EBLR) mechanism.
It also asked banks to have a more transparent framework in pricing their floating rate interest rate.
Under the current arrangement, with the increase of the market rate, the loan tenure is extended and decreased if the market rate falls.
The customer’s EMI is not altered as that can have an inverse effect on the cash flow and prove difficult for the borrower. However, the borrower can also raise the EMI instead of the tenure.
RBI has noted instances of lenders prolonging the tenor of floating-rate loans without proper consent and communication. To address this, RBI intends to establish a comprehensive conduct framework that all regulated entities must adhere to aiming to rectify the challenges faced by borrowers.
At the MPC, RBI Governor said under the framework the lenders will have to clearly communicate with the borrowers about tenor and EMI.
“The framework will require Regulated Entities to clearly communicate with borrowers for resetting the tenor and/or EMI; provide options for switching to fixed-rate loans or foreclosure of loans; disclose various charges incidental to the exercise of the options; and ensure proper communication of key information to borrowers,” he said.
The new framework will allow borrowers to switch to fixed interest rates from floating interest rates.
Floating interest rates are the rate of interest paid by the borrower that is directly related to the current financial scenario. If the bank interest rate falls, then the interest rate of the EMI too will fall, and if the interest rate goes up the EMI rate too will move up.
While the fixed interest rates on housing loans refer to an unchanged rate of interest irrespective of the change in repo rates. The rate of interest is decided at the time when the loan is approved and sanctioned by the bank.