RBI Home Loan Guidelines 2023: Latest Rules & Updates For Borrowers

Table of Content:

1. RBI Home Loan Guidelines 2023 On Penal Charges​
2. Provisions of the Newly Drafted RBI Home Loan Guidelines 2023
3. How RBI Guidelines on Home Loan will Help Borrowers?

As per the new RBI home loan guidelines on interest rates, the regulatory authority has proposed to replace penal interest with penal charges on defaults of home loans by borrowers. 

This move came after the Reserve Bank of India (RBI) observed that Regulated Entities (REs) commonly impose penal interest rates, in addition to the regular interest rates, when borrowers fail to repay or do not comply with the loan facilities' terms.The announcement to levy penalty as a charge instead of compounding interest rate aims to protect the home buyers and provide a crystal clear and fair framework for both home loan borrowers and lenders. 

Notably the penal interest was initially introduced to infuse a sense of credit discipline among the loan borrowers and to establish a fair playing ground for the lenders. Penal interest means that if a loan borrower fails to pay the home loan EMI on the scheduled date, the home loan borrower needs to pay additional interest over and above the rate of interest already charged on the home loan. 

To know how the provisions of the newly drafted 2023 RBI home loan guidelines will protect you, keep reading this blog. 

RBI Home Loan Guidelines 2023 On Penal Charges

As per the newly drafted RBI guidelines on home loan interest rates, the penalty for the miss or delay repayments of home EMI shall be in the form of penal charges. It means that the lending institutions now would not be able to charge an additional interest rate over and above the applicable rate of interest on home loan EMI default.

Also Read: Important Points to Know Before Applying for a Home Loan

Provisions of the Newly Drafted RBI Home Loan Guidelines 2023

The newly drafted RBI home loan guidelines would be applicable to all RBI regulated entities which includes all commercial banks, co-operative banks, NBFCs, and All India Financial Institutions like EXIM Bank, NHB, NABARD, SIDBI and NaBFID. Here are the provisions of the RBI guidelines on home loan that you must know:

• No capitalisation of penal charges, which means that penal charges shall not be added to the principal outstanding amount. It shall be levied separately.
  

• The amount of penal charges must be in proportion to the default.
  

• Lending entities will determine the threshold of the penal charges. However, it must not be discriminatory within a particular loan/product category.
  

• As per the RBI guidelines on home loan, the lenders have to clearly disclose penal charges to the customers in the loan agreement as well as in the most important terms & conditions in a Key Fact Statement (KFS) as applicable.

• Lenders have to display penal charges on their website under the Interest Rates and Service Charges section. As per the latest RBI guidelines on home loan interest rates, whenever reminders will be sent to borrowers regarding the payment of EMIs, the applicable penal charges will also have to be communicated. 

It is important to note that RBI rules for home loans will not apply to credit cards. 

Also Read: The Ultimate Home Loan Top Up Guide

How RBI Guidelines on Home Loan will Help Borrowers?

• The RBI guidelines could establish uniform processes across lending players so that the process is transparent.
  

• The newly drafted guidelines will enhance the credibility of the banks and also strengthen the trust of borrowers.
  

• The proposed RBI home loan guidelines will reduce the burden on home loan borrowers as the penal charges will be recovered separately and will not be added on to the outstanding principal amount.

These newly drafted RBI home loan guidelines are all set to establish transparency in the system and protect the interests of home loan borrowers.

Also Read: RBI Monetary Policy 2023 | Top Highlights