The RBI has warned the banks against violating the interest rate reset clause for the benefit of the bank. RBI said that it has observed that some banks raise their interest rates every time the base rate is changed. This is happening despite the fact that it is clearly stated in the documents of the loan contract that the rates will be rest only after a pre-defined number of years gap.
According to the reset clause set by the RBI the interest rate of fixed rate loans are supposed to be fixed, at a rate for the pre defined number of years as decided by the bank. This period varies from bank to bank. The reset period may be 2 or 3 or 5 years depending on the bank.
The problem of changing rates will affect the home loans which are having a longer tenure (15 to 25 years) and term loans in particular. The term loan or the home loan will be taken in the good faith of the rates of interest being fixed for a predefined number of years.
RBI asked banks to maintain the rates as per the reset clause and also ordered scrutiny of all term loan accounts regarding the same.