While you apply for a loan, banks expect you to be fair and transparent while disclosing material facts. However, it has been observed that, despite tight regulatory controls, banks sometimes give discriminatory treatment to borrowers. According to the report released by RBI, at times, banks don’t treat old borrower and the new borrower (with same credit profile) at par. Moreover, the report also suggests that, banks have been found changing interest rate spreads arbitrarily. To overcome this and examine the problems associated with pricing of loans, RBI had appointed a working group under the Chairmanship of Mr Anand Sinha. Based on the recommendations of the working committee, RBI has tightened the discloser norms for banks with effect from April 01, 2015.

As per the new norms, banks will have to…

• Disclose information pertaining to the range in which interest rates charged on loans for various categories in the previous quarter. Moreover, category-wise mean interest rates are also to be disclosed
   
• Reveal all facts to individual borrower related to fees and charges applicable on various types of loans at the time of processing of loans
   
• Publish information on Annual Percentage Rate (APR), i.e. total cost of credit to an individual borrower on their website
   

In addition, banks would also have to furnish one page long fact-sheet giving clear and concise information about pricing of the loan in a summarised form.

The RBI has prescribed a specific format for disclosing facts related to the loan. The key statement would touch 10 important aspects of loan contract and loan pricing which include;
 

1. Loan amount
2. Loan Term
3. Interest type
4. Interest rate charged along with break up
5. Date of reset of interest rate
6. Mode of communication of change in the interest rate
7. Fees payable along with break ups
8. EMI payable
9. Details of securities and collateral obtained
10. Date on which annual outstanding balance statement will be issued
     

PersonalFN is of the view that the new disclosure norms introduced by the RBI may help improve transparency in banking operations. PersonalFN believes that additional disclosures by banks on credit pricing will help borrowers easily compare the cost structure of loans. This will eventually enable them to make right decisions. Banks as well as borrowers may benefit from transparent pricing of loans, in the long run.

So, if you are planning to apply for a loan with a bank after April 01, 2015, make sure that you receive all relevant information pertaining to pricing of loan. When the loan amount is high, as it is in case of a home loan, a small difference in the interest rate charged by two different banks can make a big difference on your EMI payment. PersonalFN is of the view that, it is equally important to carefully analyse your current financial circumstances before applying for the loan. Creating a personalised financial plan for yourself may assist you take right decisions including those related to loans and other liabilities.

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