Concerned about loan-repayment periods becoming unreasonably long, the Reserve Bank of India (RBI) will put in place a transparent framework for resetting interest rates on floating-interest loans such as home loans.
The regulator asked banks to define a reasonable period, keeping in mind factors like age and the repayment capacity of borrowers.
Supervisory reviews, feedback, and references from the public have revealed instances of loan repayments becoming unreasonably long and without proper consent from borrowers or communication to them at that, the RBI said.
All regulated entities will implement a proper conduct framework to address the issues faced by borrowers. Detailed guidelines in this regard will be issued shortly, the RBI said in a statement on “Developmental and Regulatory Policies”.
Two senior private-bank executives said the RBI’s message was based largely on instances of mortgage loans, which are essentially long-term. During the rising interest-rate environment, lenders stretched repayment periods rather than increasing equated monthly instalments.
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