If your bank raises your loan EMI after an RBI repo-rate hike, first check your loan’s benchmark, spread and reset date, then ask the lender for the calculation and a revised repayment schedule in writing. For covered floating-rate personal loans, you can choose among a higher EMI, a longer tenure or a combination, and may prepay part or all of the balance; the best choice depends on your monthly budget and the total cost shown in the bank’s figures.
First check whether the repo-rate hike applies to your loan yet
A change in the RBI policy repo rate does not automatically change every borrower’s EMI immediately. The effect depends on the loan’s benchmark, the spread added by the lender, the contract’s reset terms and the reset date. Ask the bank to identify each of these in your loan account rather than assuming the payment should change on the date of the RBI announcement.
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For specified floating-rate loans, an external benchmark can be the repo rate or certain Treasury-bill yields published by FBIL. Under the RBI’s external-benchmark framework, the interest rate must reset at least once every three months. MCLR-linked loans follow the reset arrangements in their terms; RBI guidance sets a periodicity of one year or less. These arrangements mean the timing and size of an individual loan’s change can differ. See the RBI’s external benchmark guidance and MCLR guidance.
Read the notice and request the figures you need
- Check your agreement and reset notice. Confirm whether the loan is fixed or floating, its benchmark (such as repo-linked EBLR or MCLR), the spread, the reset date and the terms governing EMI or tenure changes.
- Ask the lender to explain the calculation. Request the current and revised interest rates, when the revised rate takes effect, how it changes your EMI or tenure, and a revised repayment schedule in writing.
- Request a current loan statement. Ask for outstanding principal, current EMI, number of instalments remaining, proposed tenure and any prepayment or switching charges. Compare the bank’s explanation with the benchmark, spread and reset clause in your contract.
For covered EMI-based floating-rate personal loans, the lender must promptly communicate an increase in EMI or tenure. Covered borrowers should also receive quarterly statements showing principal and interest recovered to date, EMI, remaining EMIs and the annualised rate. The RBI explains these requirements in its 2023 circular and FAQ.
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Know which repayment choices may be available
The RBI’s August 18, 2023 circular says that borrowers within its scope must be given a choice of an increased EMI, an extended tenure or a combination. It also provides for part or full prepayment at any point during the loan. At a rate reset, the lender must offer an option to switch to a fixed rate under its board-approved policy. That policy may limit the number of switches, and applicable switching or administrative charges should be disclosed.
The circular covers equated periodic instalment-based personal loans. The RBI FAQ says it applies whether the loan uses an external or internal benchmark, but it does not cover every loan product. Do not assume that a home loan or another type of loan is automatically covered: confirm the loan category and lender’s terms. The available choices and obligations described here should be checked against the circular’s scope and your own loan documents.
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Compare the options using your bank’s actual schedule
Ask the lender to show the figures for each available option. Compare monthly affordability, remaining repayment period, total remaining interest and fees, future reset exposure, and any prepayment or switching charge. Use the updated schedule for your own loan; a generic EMI estimate may not reflect your balance, rate or contract terms.
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| Option | What changes | What to compare |
|---|---|---|
| Increase the EMI | Your monthly payment rises; repayment may finish sooner than under an extended-tenure option, depending on the lender’s calculation. | Whether the higher payment fits your budget, and the resulting remaining interest and repayment period in the revised schedule. |
| Extend the tenure | The bank stretches repayment over a longer period, which may keep the EMI lower. | The new end date and total remaining interest and fees. A lower monthly payment can mean paying for longer. |
| Combine higher EMI and longer tenure | Both the payment and repayment period change. | Whether the combination is affordable and how its total remaining cost compares with the other options. |
| Prepay part or all | You reduce the outstanding balance, or repay it in full. | The lender’s updated figures, any applicable charges and whether you can do so while retaining an appropriate emergency reserve. |
| Switch to a fixed rate | Your rate may become fixed under the lender’s policy, changing your exposure to future rate resets. | The fixed-rate terms, switching limits and disclosed charges, alongside the cost and certainty of staying on the floating rate. |
RBI rules identify choices; they do not prescribe one as best for every household. A higher EMI puts more pressure on current cash flow, while a longer tenure can extend repayment. Consider prepayment only after accounting for applicable charges and preserving a suitable emergency reserve.
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What to do if the bank’s notice seems wrong
- Compare the rate, benchmark, spread and reset date in the notice with your agreement and the bank’s statement.
- Send the lender a written request identifying the figure or term that appears inconsistent. Ask for a corrected calculation and repayment schedule, and keep copies of the notice and correspondence.
- If a requirement appears to be missing for a loan covered by the RBI circular, raise the issue through your lender’s grievance process. The applicable procedure can vary by lender, so use that lender’s published process rather than assuming a single route applies to all banks.
The RBI’s rules and borrower options are set out in its August 18, 2023 circular and FAQ.
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