A committee appointed by Reserve Bank of India (RBI) suggested encouraging large institutional investors such as pension funds, provident funds, insurance companies, etc. to invest in bonds floated by banks.
The committee also suggested banks to float fixed rate long term loan products with periodic interest reset provision (say every 7-10 years). The panel, named ‘Committee to Assess the Feasibility of Introducing More Long-Term Fixed Interest Rate Loan Products by Banks’, also asked banks to explore the option of raising resources through long-term (LT) bonds.
The committee also suggested popularising fixed deposit schemes with tenor of 5 years and above as the same are eligible for tax exemption, allowing banks to issue LT bonds for their exposure to housing loans qualifying for priority sector. The panel called for promoting take-out financing in case of housing loans.
Besides, it strongly feels that the aspect of transparency in retail loan products should be appropriately addressed and the customers be educated by the lending institutions on the possible impact of rate changes on their equated monthly instalment (EMI) to enable borrowers to have better planning with regard to their repayments.
It said, at times, the customers taking floating rate loans are not able to understand the intricacies of economic cycles, changes in policy rates, transmission of the same and the consequential sudden increase in EMIs thereby exposing themselves to interest rate risk.
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