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Reserve Bank for periodic interest reset on fixed-rate long-term loans


The Reserve Bank of India (RBI) proposed banks be allowed to reset interest on fixed-rate long-term loan products instead of charging a fixed rate throughout the tenure as it will be costlier for a borrower than floating rate loans.

Banks could reset interest rates after a period of 7-10 years, said a RBI panel's report on assessing feasibility of introducing more long-term fixed-rate loan products by banks on Tuesday.

"Till few years back, a majority of loans offered by the banks and financial institutions in India used to be in the nature of fixed-rate loan products. However, in recent times, retail loan portfolio of banks has become skewed in favour of floating rate loan products," the report said.

The RBI panel also urged banks to raise long-term bonds to finance their long-term fixed-rate loan products to avoid asset-liability mismatch.

Banks can offer fixed-rate loans of up to 30 years to reduce the burden of monthly instalments on borrowers, the report said.

Copyright @ Thomson Reuters 2013

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