RBI proposes cap on household loan repayments linked to income

Household loan repayments to have slabs linked to income, say RBI

On Tuesday, the Reserve Bank of India (RBI) made public its decision on the regulation of microfinance loans. Microfinance is a financing service available for low-income or unemployed people. Microfinance loans are provided to low-income or unemployed people or groups.

The consultation document said that the microfinance loans would be made applicable to microfinance loans provided by all entities regulated by the central bank.RBI proposes cap on household loan repayments linked to income

The documents put forward by the RBI aim of enabling competitive forces to bring down the interest rates by empowering the borrowers to make an informed decision. Also, RBI added that it aims to safeguard the microfinance borrowers from indebtedness as well as enabling.

One of the major key highlights of the document released was,” Capping the outflow on account of repayment of loan obligations of a household to a percentage of the household income”, meaning interest rate limit on repayment of a household to a percentage of household income.

It also suggested prepayment penalties on loans and requirements of collaterals.

A few other important points that the regulations touched on are:

  • Providing greater flexibility of repayment frequency for all microfinance loans
  • Aligning pricing regulations for NBFC-MFIs with guidelines for NBFCs.
  • Introducing a standard simplified fact sheet regarding the pricing of microfinance loans helping in making the process transparent.
  • Display of minimum, maximum and average interest rates charged on microfinance loans on the websites of regulated entities.
  • Calling for comments for concerned stakeholders on the consultative document 

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