 "Lenders need to make software tweaks, borrower engagement for RBI Rules")
Lenders are faced with the task of making substantial changes to their software and IT systems in order to comply with the Reserve Bank of India's (RBI) directive. This new ruling restricts the charging of penalty as penal interest on borrowers for defaults and breaches of loan contracts. Furthermore, banks will have to engage in comprehensive communication with customers concerning the new rules related to the resetting of interest rates, the transition to fixed interest regimes, and other related matters, according to bankers.
A senior executive from the State Bank of India (SBI) explained that, in addition to modifying systems and IT structures to reflect the new rules, lenders must thoroughly test them before implementing them across networks for routine use.
Simply communicating the rules for resetting and choosing fixed rates through channels such as email will not suffice. There will need to be face-to-face interactions with borrowers at branches to explain the changes and gather their responses. This work will be spread over several months, and as a result, the regulator has given a deadline until the end of December 2023 for these revisions and updates, the SBI executive noted.
The RBI took this step after receiving multiple consumer grievances related to the extension of loan tenures and/or increases in Equated Monthly Instalment (EMI) amounts without proper communication or consent from borrowers. It has thus advised Regulated Entities (REs) to establish an appropriate policy framework to address these concerns.