MUMBAI: The Reserve Bank of India (RBI) on Thursday decided to keep the repo rate unchanged at 6.5 per cent for the third time in a row, giving some respite to home loan borrowers who have seen their EMIs rise considerably. The other good news is that the central bank announced to establish a framework for bringing in more transparency for resetting of interest rates on floating interest loans to reinforce consumer protection.The central bank asked lenders to be transparent in resetting the interest rate and EMIs of floating rate home loans under the external benchmark based lending rate (EBLR) mechanism. The central bank has also asked the lenders to offer the borrowers under EBLR regime an option to switch to fixed rate home loan whenever they want. Since the interest rate upcycle (from May 2022 till February 2023), the repo rate has been hiked by 250 basis points resulting in 160 basis points rise in home loan rates according to Shishir Bajaj Chairman and Managing Director, Knight Frank India.
"It is proposed to put in place a transparent framework for reset of interest rates on floating interest loans. The framework will require Regulated Entities to (i) clearly communicate with borrowers for resetting the tenor and/or EMI; (ii) provide options for switching to fixed rate loans or foreclosure of loans; (iii) disclose various charges incidental to the exercise of the options; and (iv) ensure proper communication of key information to borrowers. These measures will further strengthen consumer protection," said the RBI.
"The supervisory reviews undertaken by the Reserve Bank and the feedback and references from members of public have revealed several instances of unreasonable elongation of tenor of floating rate loans by lenders without proper consent and communication to the borrowers," said the RBI statement.
Shaktikanta Das, Governor RBI in a post policy press conference said that age-factor plays an important role in extending loan tenors and hence, it is important for banks to take it into account when they decide on floating rate loans. However, the decision is upto the banks and their boards Das said.
Anuj Puri, Chairman - ANAROCK Group said, "The unchanged repo rate will help maintain the momentum in housing sales - particularly in the mid and luxury segments, which did significantly well in H1 2023."
"Amidst the rising cost of properties and the cumulative 250 bps rate hikes by the RBI in the last one year and more, affordable housing buyers have taken the severest blow. As per ANAROCK Research, homebuyers’ EMIs jumped up by 20 per cent in the last two years. Home loan borrowers who were paying an EMI of approx Rs 22,700 in July 2021 are now paying approx Rs 27,300 - an increase of approx Rs 4,600 per month. This 20 per cent increase in the EMI has resulted in a jump of approx Rs 11 lakh in the overall interest component - from approx Rs 24.5 lakh interest payable in 2021 to approx. INR 35.5 lakh today. The total interest payable over a 20-year tenure is now more than the principal amount," added Puri.
