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Transparent framework for reset of EMI-based floating interest loans

RBI LogoTo display transparency in interest rate reset of equated monthly instalments (EMI)-based floating interest loans, the RBI has proposed to put in place a transparent framework for reset of interest rates on floating interest loans.

Announcing the MPC’s policy decisions on Thursday, RBI Governor Shaktikanta Das said: “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. These measures will further strengthen consumer protection.”

Macro stress tests

The total flow of resources to the commercial sector from banks and other sources taken together has increased by Rs 7.5 lakh crore during the financial year 2023-24 so far (up to July 28) as compared with Rs 5.7 lakh crore a year ago. Aggregate demand conditions continue to be buoyant. Among urban demand indicators, domestic air passenger traffic, passenger vehicle sales and households’ credit are exhibiting sustained growth. High growth in agricultural credit and improving sales volume of major fast moving consumer goods (FMCG) companies suggest incipient recovery in rural demand, which will be reinforced by improving kharif prospects. Investment activity gained further steam on the back of government capital expenditure7, rising business optimism and revival in private capex in certain key sectors.

Looking ahead, these underlying developments and the upcoming festival season are expected to provide support to private consumption and investment activity. Real GDP growth for Q1:2024-25 is projected at 6.6%. The risks are evenly balanced.

Das added: “Macro stress tests for credit risk reveal that scheduled commercial banks (SCBs) would be able to comply with the minimum capital requirements even under severe stress scenarios. A stable financial system is a prerequisite for price stability and sustained growth. This is a shared responsibility in which regulated entities like banks, NBFCs and others are important stakeholders. On its part, the Reserve Bank remains steadfast in its commitment to safeguard the financial system from the emerging and potential challenges. We expect the same from the regulated entities also. Services exports and remittances are, however, expected to provide cushion to the current account deficit. We, therefore, expect CAD to remain eminently manageable during the current financial year also. I reiterate our commitment to align CPI inflation to the 4% target on a durable basis. We do look through idiosyncratic shocks, but if such idiosyncrasies show signs of persistence, we have to act.”

Framework Review

It has been decided by the RBI to revise the extant regulations issued in June 2019 and put in place a comprehensive, risk-based framework for administration of financial benchmarks. This will cover all benchmarks related to foreign exchange, interest rates, money markets and government securities. The revised directions will provide greater assurance about the accuracy and integrity of financial benchmarks.

At present, Infrastructure Debt Funds (IDFs) provide refinancing facilities for lenders in the infrastructure sector. The extant regulatory framework for IDFs has been revised. Das added: “The key changes in the revised framework are: withdrawal of the requirement to have a sponsor for the IDFs, allowing IDFs to finance toll-operate transfer (ToT) projects as direct lenders, permitting IDFs to raise funds through ECBs, and (iv) making tri-partite agreements optional for PPP projects. These changes are expected to further augment the capacity for infrastructure financing in the country.”


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