Solution

Reserve Bank of India (RBI) would bring in greater transparency in the resetting of the interest rate on equated monthly installments (EMI) for floating-interest loans.    A floating interest rate is a rate that varies or changes along with the changing market conditions as opposed to a fixed interest rate which remains the same for the entire tenure of the loan.     The new framework will allow borrowers to switch to fixed interest rates from floating interest rates. This would provide relief to borrowers of home, auto, and other loans reeling under the impact of high interest rates.The framework will require Regulated Entities to (i) clearly communicate with borrowers for resetting the tenor and/or EMI; (ii) provide options for switching to fixed-rate loans or foreclosure of loans; (iii) disclose various charges incidental to the exercise of the options; and (iv) ensure proper communication of key information to borrowers.  At present, loan seekers can switch from floating and fixed interest rates and vice versa but have to pay a nominal conversion fee. The fee varies between 0.50 percent to 2 percent of the total home loan amount.