Due to the impact of high interest rates, the RBI plans to introduce a new framework that will allow borrowers to switch from floating to fixed interest rates. This measure will help home loan, automobile, institutional, and other borrowers. The framework will also help the finance sector players by introducing a new platform to improve the digital loan disbursement.
What is a fixed vs floating interest rate?
Fixed interest rate means that the rate of repaying the home loan doesn’t change as per the market conditions and remains fixed for the entire loan tenure. On the other hand, a floating interest rate has a base rate and a floating element. If the base rate changes due to market fluctuations, the floating rate for home loans changes automatically.
New Framework to convert floating interest rate
Once the framework is introduced by RBI, borrowers will receive clear information about the loan tenure and EMI from the lenders. Moreover, lenders must keep borrowers informed about any essential information regarding their accounts. This includes information about switching from a floating interest rate to a fixed rate, converting loan tenor and EMI schedules, and any charges associated with availing the above options.
The revised framework will also help institutional borrowers in the infrastructure sector. It will help Infrastructure Debt Funds (IDFs) to finance infrastructure projects without being surmounted by regulations. With the revised framework, IDFs will not require a sponsor and also be able to access External Commercial Borrowings (ECBs).
A push for India’s Fintech sector
To improve paperless loan disbursement, the Reserve Bank Innovation Hub (RBIH) plans to roll out a digital Public Tech Platform as a pilot project to reduce lending costs and paperwork. This Platform is being developed on the learnings from a pilot project for digitisation of Kisan Credit Card (KCC) loans under Rs 1.60 lakh.
The open architecture-based Platform will help financial sector players, such as FinTech companies and startups, to access the data required to approve the loans. Currently, this data is available with different authorities, banks, and digital identity authorities.
The new platform will allow finance sector players to access the data required for digital lending seamlessly.
These announcements are part of the bi-monthly monetary policy, which will be applied to use shortly. Detailed guidelines regarding these announcements will be issued soon.
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