RBI’s Guidelines on Floating Rate EMI: What You Need to Know

The Reserve Bank of India (RBI) has introduced detailed guidelines concerning the calculation of Equated Monthly Installments (EMIs) for loans with floating interest rates.

In the release issued on August 18, all registered entities (RE) have been instructed to provide clear information to loan customers regarding the potential impact of changes in the benchmark interest rate.

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This ensures that banks must transparently communicate how alterations in the benchmark interest rate could influence loan EMIs and repayment tenor.

Deadline for Customer Communication

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According to the RBI release, any increase in EMI or tenor resulting from changes in the benchmark interest rate must be promptly communicated to borrowers through appropriate channels.

The central bank’s recent monetary policy announcement highlighted its intention to release these guidelines soon.

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The RBI mandates that all REs must effectively communicate these instructions to both new and existing loan customers by December 31, 2023.

Flexibility to Choose Fixed Interest Rates

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Under the new guidelines, existing customers will be informed about their options through suitable communication channels. This will include clarifying available alternatives.

Furthermore, the RBI stipulates that banks are required to offer borrowers the choice to switch to a fixed interest rate.


This option should align with the bank’s approved policy and clearly specify the number of permissible switches during the loan tenure.

Enhanced Flexibility for Borrowers


The guidelines emphasize enhanced borrower flexibility. Banks must permit customers to opt for increased EMIs, extended loan tenures, or a combination of both.

Borrowers will also be granted the option to partially or fully prepay their loans at any point during the loan tenure.

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To ensure transparency, REs are mandated to inform customers about all charges associated with loan switches.

Simplified Loan Statements

In addition to the aforementioned measures, the RBI has urged registered entities to simplify loan statements for customers.

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This emphasis on clarity and simplicity aims to empower borrowers with the necessary information to make informed decisions about their loans.

As per the RBI’s directives, these guidelines intend to promote greater transparency, flexibility, and awareness among borrowers, enabling them to navigate their loan terms with confidence and understanding.


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