Understanding important personal loan guidelines laid down by the RBI

Reviewed by: Amit Saraf

  • Updated on: 29 Jan 2024
  • Published on: 11 Jan 2024
Understanding important personal loan guidelines laid down by the RBI

Did you know that unsecured loans, especially for amounts of ₹50,000 or less, are the fastest-growing credit facility in the country? To regulate this booming market, the Reserve Bank of India (RBI) has laid down certain personal loan guidelines. 

These regulations have a common goal: To eliminate unethical lending practices and protect your rights as a borrower. Read on to know more about this regulatory framework.  

RBI guidelines for financial institutions 

RBI guidelines for personal loans help facilitate a fair and transparent lending process:

  • The loan application must be comprehensive, containing all the necessary details regarding interest rates and fees
  • The lender must verify the loan application within a reasonable period
  • The lender must contact the borrower without undue delay in case additional documents are needed
  • The lending institution must convey the reason for rejection in writing of a loan application of less than ₹2 lacs
  • The lender must timely convey the changes in terms and conditions to the borrowers
  • In case of a recall/cancel/request for faster repayment, the lending institution must provide adequate notice
  • Lenders can’t discriminate among borrowers based on sex, religion, caste, etc.
  • The lending institutions can’t resort to unethical measures to recover the loan amount  

Personal loan terms

Personal loans don’t generally come with any end-use caps. This allows you to use the loan amount for any reason, be it:

  • Education
  • Weddings
  • Travel
  • Medical treatment
  • Home improvement
  • Business

However, they do have other restrictions and policies. It is very important for you to read the terms and conditions of a loan before you sign the dotted line. Take a look at some common terms to be aware of.

  • Qualifying Criteria: Meeting the eligibility terms set by the lender is important to get quick approval on your loan application. Usually, lenders check the following: 
    • Your age 
    • Your income and employment stability 
    • Your credit score 
    • Your existing obligations 
  • Repayment Conditions: While you can choose your tenure, these terms refer to the interest rate applicable on your loan. It also helps you understand whether you will be repaying on the basis of flexible or fixed rates as well how you will repay:
    • Bullet repayment
    • Lump-sum payment
    • EMIs
  • Foreclosure and Prepayment Policies: This section of terms and conditions informs you about the terms related to making a part-prepayment or foreclosing the loan. This refers to:
    • When you can take advantage of these facilities during the loan tenure
    • Costs related to these facilities 
  • Applicable Charges: Banks and NBFCs charge processing along with other fees on personal loans. Other applicable charges may include part-prepayment or foreclosure charges, statement charges, EMI Bounce Charges and more. Read the terms and conditions carefully to spot any hidden charges included in the loan application.    

In conclusion, all RBI-registered lenders follow the mandatory regulations laid down by the central bank. Fibe, an RBI-registered NBFC, follows these ethical lending practices and offers an Instant Cash Loan of up to ₹5 lakhs. Download the Fibe Personal Loan App to enjoy quick loan sanctions with a simple application process and minimal paperwork.

FAQs on RBI’s Personal Loans Guidelines

What are the RBI’s loan guidelines?

The Fair Lending Practices Code by the RBI aims to regulate the personal loan segment for transparent and ethical disbursal of loans. These guidelines include:

  • Providing comprehensive loan applications with mention of key details about rates and charges
  • Time-bound verification and disbursal of loans
  • Conveying reasons for rejection of application

 The lending policies of all banks and NBFCs need to adhere to the RBI’s personal loan guidelines. 

What are the conditions to get a term loan?

Every financial institution works on their own set of terms and conditions based on RBI’s guidelines. These terms relate to:

  • Loan interest rates and other charges
  • Prepayment and foreclosure policies
  • Eligibility criteria for borrowers
  • Repayment tenures and plans 

What are the RBI’s guidelines for loan defaulters?

As per the RBI, financial companies can write off defaulted loans or designate them as non-performing assets (NPAs). These institutions can also file a case against the defaulter in the civil court.     

What are the latest regulations of RBI related to personal loans?

November 2023, RBI issued amended personal loan rules. The reformed guidelines raised the risk weights that banks and NBFCs need to set aside for every loan by 25% to 125% on retail personal loans.

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