The Reserve Bank of India (RBI) has been tightening lending rules to ensure transparency in borrowing and protect consumers from hidden costs and unethical practices. The changes will benefit borrowers with clearer information regarding loan rates, fluctuating interest rates, electronic lending, and repayment options. However, it is important to note that the directions, which will be called “Reserve Bank of India (Interest Rates on Loans and Advances) Directions, 2026”, are proposed to come into effect from April 1 next year. However, borrowers should note a few things.
Increased transparency regarding loan costs
According to Mukesh Pandey, Founder & MD, Rupyaapaisa.com, one thing borrowers should note is the increased disclosure of the APR (Annual Percentage Rate) and other costs. For regulated loans, the KFS (Key Fact Statement) has been developed to give borrowers a clearer understanding of the total loan cost, along with any other transaction fees. “It should also be noted that the charges that are not included in the KFS cannot be introduced later without the explicit agreement of the borrowers. This allows borrowers to compare loan options based on more than just the interest rate,” Pandey said.
Better choices when interest rates change
For floating-rate loans with an EMI scheme, RBI rules require lenders to inform borrowers what happens to their loans when interest rates change. Depending on the lender and loan specifications, a borrower may be offered several options, including an increase in EMI, elongation of the loan period, etc. The idea is to prevent surprises for borrowers when rising rates add to their repayment burden.
Stricter regulations for digital lending
Digital borrowing is now subject to stricter regulations. The Indian banking regulator has introduced a framework that includes features such as better transparency in the costs of digital loans, borrower consent for the collection of borrower data, privacy policies, and the disclosure of recovery agents.
What should borrowers do?
Once borrowers receive this information, they are responsible for reading the fine print before signing. They should also check the key facts statement, APR, processing fees, penalty charges, and prepayment or foreclosure features before signing. Given the RBI’s evolving framework, which brings new information to borrowers, they need to know how to use it to their advantage.
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