Banks to Give Home Loans with Lower EMI, Long Term: RBI

The Reserve Bank of India, in its draft report suggests banks to introduce home loans with lower EMIs and higher repayment period of up to 30 years. Further, there should be a provision of re-fixing the interest rate after a period of 7-10 years for long-term fixed rate home loans. At present, most banks offer home loans with a maximum tenure of 15-20 years.

Moreover banks should educate its customers about the retail loan products regarding impact of rate changes on EMIs to enable them to have better planning with regard to their repayments. Most customers do not understand the intricacies of changes in policy rates, sudden increase in EMIs, etc. thereby exposing themselves to interest rate risk.

Also, banks should levy penalty on pre-payment only on the outstanding amount on the date of pre-payment and not on the loan amount that is sanctioned initially.

The RBI report advises banks to popularise fixed deposit schemes of at least five year period as it would help them procure big savings in the long term. RBI recommends large institutional investors like pension funds, insurance, provident funds etc. to invest in bonds issued by banks.

Source: The Financial Express

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