Has your home loan or auto loan EMI not decreased despite the Reserve Bank of India’s (RBI) repo rate cut? In the December Monetary Policy Committee meeting, the RBI reduced the repo rate by 0.25 percent, bringing the total reduction to 1.25 percent by 2025. Typically, banks immediately pass on the benefits of repo rate reductions to customers, reducing their EMIs. However, many borrowers don’t receive the expected EMI relief immediately. It’s crucial to understand why your EMI hasn’t changed and where you can file a complaint if you don’t receive relief.
Reasons for No or Delayed EMI Changes
The main reason for loan EMIs not decreasing or being delayed despite the repo rate cut is the type of interest rate applied to your loan.
Fixed-Rate Loans
If your loan is a fixed-rate loan, a decrease or increase in the repo rate will not change the EMI. Fixed-rate loans remain at the same pre-determined interest rate from the time of borrowing to repayment.
Floating-Rate Loans
The rate reduction benefit for floating-rate loans depends on the benchmark to which your loan is linked. Since October 2019, most floating-rate loans are linked to an external benchmark, such as the RBI’s repo rate. The EMI of a repo-linked loan fluctuates with repo rate fluctuations. However, older loans may still be linked to the MCLR (Marginal Cost of Funds Based Lending Rate) or base rate system. While the EMI of a loan linked to the MCLR or base rate is not mandatory, banks often do.
In addition, banks also consider credit risk premiums, operating costs, and their own funding costs. This is why the benefit of a rate reduction may be delayed or reduced. Therefore, first determine whether your loan is fixed rate, MCLR-linked, or repo rate-linked.
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How to file a complaint if you don’t receive relief
If your loan is repo-linked and your bank isn’t passing on the benefits of the repo rate cut, you can take the following steps:
- First, write a letter or email to the bank, providing your loan account details. You can also speak to the bank manager in person.
- If you don’t receive a response to your written complaint within 30 days, contact the Grievance Redressal Officer or Banking Ombudsman.
- In June 2019, the RBI launched the Complaint Management System (CMS) for filing online complaints against banks and non-banking financial companies (NBFCs). The CMS is available on the RBI website. Customers can file online complaints against any regulated entity, such as commercial banks, urban cooperative banks, and NBFCs.
Alternative Ways to Change Loan Rates
If a customer wishes to move from the old rate system to a repo-linked loan, they can request a conversion from their bank. Most lenders allow this for a nominal fee. Additionally, customers can refinance their loans at a lower rate from another bank. This can be especially useful if their credit score has improved since taking out the loan.
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