The Reserve bank of India is a governing body that regulates the banks & NBFC’s regarding the interest rates, disbursement of loans, penalty charges being charged to the borrower in loan default. ETC. The RBI keeps strict control over the banks regarding the malpractices if being carried out or if un-secured loans are being given to the banks. The RBI may charge a heavy penalty to the lenders if any malpractices are being carried out by the lender. Also, the banks & the NBFC’s need to follow the proper recovery process in case of default or delay of loans by the borrowers. For the home loan applicant, it is necessary to know the appropriate rules and regulations set by the reserve bank of India. Knowing the rights and rules of the loan applicant can help the borrower protect themselves from getting mislead. The CIBIL rating of the borrowers plays an essential role in the approval of the loans of the loan applicants. Therefore, it is necessary to have a good CIBIL score in case of the approval of loans. The loans can be disbursed only in case of the proper documents being submitted to the lender by the borrower.
The loans being disbursed should be repaid on time by the borrower to avoid penalty being charged by the lender. The loans can be approved in proportion to the salary of the loan applicant. The loans are charged with the processing fees to the loan applicant, which is an additional charge being applied to the borrower. The processing fees differ from lender to lender and are in the range of Rs.10,000 or 1% of the loan amount, whichever is lower. The interest charges being levied are as per the Repo rate being charged by the RBI. All the lenders are supposed to charge the same amount of interest rates to the borrowers according to the Repo rate set by the Reserve bank. However, in the given range, the interest rates being charged are different according to the lender in a particular range. The interest rates vary in the range of 6-8% per annum. Banks are not allowed to provide loans without a proper documentation process. Still, some small cooperative credit societies provide unsecured loans to borrowers without an appropriate method of documentation. The cooperative credit societies are also under RBI control; still, the cooperative credit societies show some leniency to the borrowers.
Following are the guidelines set by RBI related to home loans:
- Guidelines related to income tax:
The RBI mandates that the borrowers should pay the income tax and should do proper disclosure of income. If the loan applicant does not disclose the income adequately and defaults on income tax, then, in that case, the loans should not be granted to the defaulters. As per RBI guidelines, loans should be disbursed to only honest taxpayers. The defaulters of income tax or those who have black money and hide their incomes should not be allowed to avail loans from the lender.
- Guidelines on loan-to-value ratio:
The RBI is increasing the loan to value ratio from the existing 80% to 90% eligibility. The increased LTV ratio helps the borrower avail loans of a higher amount to the home loan applicant.
- Guidelines on pre-payment charges:
The loan value is of a high amount, and thus the tenure for the loan is high. Earlier banks used to charge a penalty of 2-5% on the pre-payment of loans to keep the installments payment long-lasting from the borrowers. However, in a later stage, the RBI withdrew the penalty charges levied by the lenders in case of the pre-payment of charges by the borrower. Therefore, the early pre-payment can help the borrower become early debt-free from the loans.
- Guidelines related to the recovery of the bad debt:
Some lenders follow unethical malpractices while making the recovery of loans. For example, the recovery agents harass the customers on calls or physically visit their home, use abusive language or else physical or mental harassment of the customers, or use threatening language. Mainly the private lenders are involved in such kinds of malpractices. The Reserve bank mandates the banks & NBFC’s to follow only ethical practices to recover loans. This rule was agreed upon by most of the banks. If due to genuine financial problem, if the lender is unable to repay loans to the lender and so is being harassed by the lender, then in that case borrower can complain to the RBI regarding such malpractices. The Reserve bank of India has the right to penalize such offensive lenders and take action against such lenders.
- Guidelines on home loan balance transfer:
The borrowers can switch the loans from higher interest rates loans to lower interest rates loans. Thus, the borrowers can switch to a newer lender in case of the lower interest rates being offered by the new lender without any penalty.
Thus, the loan applicant should know the guidelines before opting for the loans as it can help avoid getting misled by the lender. The loan guidelines related to proper documentation and income tax returns should be followed appropriately to facilitate the smooth processing of loans. The borrower can complain to RBI regarding the malpractices being followed by the lender or mislead by the lender or against any harassment.