Mumbai: A Reserve Bank of India (RBI) committee formed to assess the feasibility of long-term interest rate products by banks has recommended that banks should introduce a long-term fixed rate loan product with a re-set clause every seven to ten years. RBI released the draft guidelines on Friday. The committee was headed by RBI chief general manager, internal debt management department, K.K. Vohra. It said banks can also look at raising 30-year bond, based on the government security of similar tenure. “Banks could therefore elongate the tenure of fixed rate loans up to 30 years which would help reduce the EMI (equated monthly instalments) of borrowers,” the committee said.
Banks should also popularize fixed deposit schemes above five years which are eligible for tax exemptions and could lead to banks meeting their long-term funding requirements and allow them to extend long-term fixed rate loans.
Banks can charge a pre-payment penalty only on the outstanding amount and not on the initial payment, it suggested. “Pre-payment penalty could be graded, based on the period after which the loan is repaid,” the committee said.
Public comments on the draft report are invited till 23 November.