APPLICATION TO SWITCH THE INTEREST RATE ON A LOAN ACCOUNT
Loan Account Number: __________
Date: __________
Place: __________
Sent by: __________
To
The Branch Manager
__________
__________
__________
Copy to: The Nodal Officer / Principal Nodal Officer, __________
From
__________
__________
Phone: __________
Email: __________
Subject: Loan Account __________ — application to reprice the loan to __________, and to be given the switch fee and the revised terms in writing before anything is debited
Dear Sir / Madam,
1. The loan account this letter is about
1.1 This letter concerns the loan account described below, which stands in my name. Please quote the loan account number on every reply.
1.2 Particulars:
- Loan account number: __________
- Type of loan: __________
- Purpose for which the loan was taken: __________
- Date of sanction: __________
- Amount sanctioned: __________
- Principal outstanding today: __________
- Present EMI: __________
- Balance tenure: about __________ months
- Present rate of interest: __________% per annum
- Present interest rate basis: __________
- Status of the account: __________
2. What I am asking you to do
2.1 Please reprice this loan account from its present basis — __________ — to __________, with effect from the earliest date your systems allow.
2.2 Before you process anything, please send me in writing the price of that change and the terms on which it will be given effect, as listed in paragraph 6 below, so that I can accept them.
2.3 Please treat this as a formal application under your Board-approved interest rate policy and under the Reserve Bank of India instructions named in paragraph 3, register it in your customer service or grievance system, and give me the reference number.
3. Why you are required to offer me this option
3.1 The Reserve Bank of India instructions I rely on are set out below. Those in paragraphs 3.2 to 3.4 are addressed to banks. The framework in paragraph 3.5 reaches banks, non-banking financial companies and housing finance companies alike, but only in respect of EMI-based personal loans. Please tell me in your reply which of them you accept as applying to you and to this loan.
3.2 By circular DBR.DIR.BC.No.14/13.03.00/2019-20 dated 4 September 2019 on External Benchmark Based Lending — since carried into the Master Direction – Reserve Bank of India (Interest Rate on Advances) Directions, 2016, as amended from time to time — banks were required to link all new floating rate personal and retail loans, and floating rate loans to micro and small enterprises, to an external benchmark with effect from 1 October 2019. The permitted benchmarks include the Reserve Bank's policy repo rate and the Government of India three-month and six-month Treasury Bill yields published by Financial Benchmarks India Private Limited.
3.3 The same circular deals with loans such as mine, sanctioned on an older benchmark. Existing loans linked to the MCLR, the Base Rate or the BPLR continue until repayment or renewal. But floating rate term loans sanctioned to borrowers who are eligible to prepay a floating rate loan without pre-payment charges are eligible to be switched over to the external benchmark without any charges or fees, except reasonable administrative or legal costs. For that class of borrower the circular goes further than the fee, and fixes the rate as well: the final rate charged post switchover shall be the same as the rate charged for a new loan of the same category, type, tenor and amount, at the time of origination of the loan. It is only for existing borrowers outside that class that the circular leaves the move to be made on mutually acceptable terms. By circular DBOD.Dir.BC.No.110/13.03.00/2013-14 dated 2 June 2014, banks were told not to charge foreclosure charges or pre-payment penalties on floating rate term loans sanctioned to individual borrowers. If this is a floating rate term loan sanctioned to me as an individual, I am in the class of borrower that provision describes.
3.4 On the spread. Under the same September 2019 circular a bank is free to decide its spread over the external benchmark; but the credit risk premium may be changed only when the borrower's credit assessment undergoes a substantial change, as agreed in the loan contract, and the other components of the spread, including operating cost, may be altered once in three years. The rate under an external benchmark must be reset at least once in three months.
3.5 By circular DOR.MCS.REC.32/01.01.003/2023-24 dated 18 August 2023 on the Reset of Floating Interest Rate on Equated Monthly Instalment based Personal Loans — which is addressed to banks, non-banking financial companies and housing finance companies alike, and which applies to floating rate EMI-based personal loans as defined in the Reserve Bank's circular DBR.No.BP.BC.99/08.13.100/2017-18 dated 4 January 2018 on XBRL Returns – Harmonization of Banking Statistics, that is, loans to individuals consisting of consumer credit, education loans, loans for the creation or enhancement of immovable assets and loans for investment in financial assets — a lender must, at the time of reset of interest rates, give the borrower the option to switch to a fixed rate in accordance with its Board-approved policy; must give the borrower the choice of a higher EMI, or a longer tenor, or a combination of the two, rather than imposing one of them; must permit prepayment in part or in full at any point in the tenor; must ensure that lengthening the tenor does not result in negative amortisation; must disclose transparently all charges for switching from a floating to a fixed rate and every other service or administrative cost incidental to the exercise; and must make available to the borrower the quarterly statement described in paragraph 6.3.
3.6 I am not asking for a favour or a concession. I am asking you to make available in my case an option the Reserve Bank requires you to offer, and to tell me its price and its terms in writing before I commit to it.
3.7 On the spread applied to my account, please state in your reply the spread or margin presently applied over the benchmark, the date on which it was last set, and whether any component of it has been altered in the last three years. If I have asked below for a reduction and you decline it, please give me your reason in writing.
4. The switch or conversion fee
4.1 Please tell me in writing, before you process anything: (a) the switch or conversion fee in rupees, and how it is calculated; (b) the goods and services tax on it; (c) any stamp duty, legal, valuation or other cost you propose to recover from me; and (d) whether any part of it is refundable if I decide not to go ahead.
4.2 So far as this is a floating rate term loan sanctioned to me as an individual, the circular of 4 September 2019 limits what may be recovered on a switchover to the external benchmark to reasonable administrative or legal costs. If you propose to recover more than that, please tell me the head under which you charge it and the Reserve Bank instruction or the clause of my loan agreement you rely on.
4.3 On the fee, my position is: __________.
4.4 Please do not debit any amount to this loan account, or to any other account of mine with you, until I have accepted the quotation in writing.
5. EMI or tenure, and the fixed rate option
5.1 If the change alters what I have to pay, my preference is: __________.
5.2 Where the framework of 18 August 2023 applies to this loan, that choice belongs to me and not to you. Please do not apply one of them by default. Please confirm in your reply which of them you propose to apply, and show me the effect of the other.
5.3 Please confirm that no lengthening of the tenure will result in negative amortisation — that is, that every instalment will continue to cover at least the interest accruing for that period.
5.4 If I am asking for a fixed rate, please state plainly for how long the rate is fixed, what happens at the end of that period, and what it will cost me to move back to a floating rate. A rate described as fixed but reset every two or three years is not a fixed rate for the balance tenure, and I want that stated in the offer rather than left to the fine print.
5.5 Please also confirm my right to prepay this loan in part or in full at any point during the tenure, and what, if anything, you will charge me for doing so.
6. What I ask you to send me, and by when
6.1 Please send me, in writing and signed on behalf of the branch:
(a) whether this request is accepted, and if it is refused, the reason, in writing;
(b) the date from which the change will take effect;
(c) the new interest rate basis, the value of the benchmark on the effective date, the spread applied over it, and how often the rate will reset;
(d) the new rate per annum, and the annual percentage rate for the balance tenure;
(e) the rate you charge today on a new loan of the same category, type, tenor and amount as this one, stated alongside the rate you are offering me on the switchover, and if the two differ, why;
(f) the revised EMI, or the revised tenure, or both, with a full amortisation schedule to the end of the loan;
(g) the total of every charge — fee, tax, stamp duty, legal and valuation — in rupees;
(h) whether the change is one-way, and if it can be reversed, on what terms and at what cost;
(i) if I must sign anything to give the change effect, a draft of that document, the stamp duty payable on it, who bears that duty, and whether it has to be registered;
(j) confirmation that no other term of the loan — the sanctioned amount, the security, any guarantee, any insurance, or the prepayment terms — changes as a result; and
(k) the reference number under which this application has been registered.
6.2 Please send all of that within 15 days of receiving this letter.
6.3 Where the framework of 18 August 2023 applies to this loan, please also begin sending me the quarterly statement it requires: the principal and interest recovered to date, the EMI amount, the number of EMIs left, and the annualised rate of interest or annual percentage rate for the entire tenure.
7. If I do not hear from you
7.1 Step one — this branch. This letter is my written request to the branch. If I have no written reply within 15 days of the date you receive it, I will treat that as a refusal to consider the request and move to step two.
7.2 Step two — your grievance machinery. I will then complain in writing to your Grievance Redressal Officer and, if you are a bank, to your Principal Nodal Officer. You are required to display the name, address, email and telephone number of that officer at every branch and on your website, together with the salient features of the complaint redress and ombudsman arrangements that apply to you. If those particulars are not on display, please give them to me with your reply.
7.3 Step three — the forum outside your organisation. __________
7.4 What that route can and cannot do. Whichever forum it is, I understand that it will not tell you what rate to charge, because pricing is your commercial decision. What it does reach is a failure to make available an option the Reserve Bank requires you to offer, a failure to disclose charges in the manner required, the recovery of a charge beyond what the instructions permit, and a failure to respond at all. Those are the grounds I would rely on. So please answer each of the items in paragraph 6.1 specifically, rather than with a general statement that the request has been noted.
7.5 Nothing in this paragraph gives up my right to approach a consumer commission under the Consumer Protection Act, 2019, or any other forum open to me.
8. Delivery and proof
8.1 I am sending this letter by __________.
8.2 If it is handed over at the branch, please sign, date and stamp the acknowledgement at the foot of my copy, enter the inward or reference number, and write the name and employee code of the person receiving it. Please do not decline to acknowledge it. An acknowledged copy is the only proof a borrower has that a request was made on a particular date.
8.3 I am keeping, with my file copy, the acknowledged copy or the acknowledgement due card or the tracking printout, and, where I have emailed it, the sent email with its timestamp.
8.4 Please send every reply in writing, to the email address and the postal address given in this letter. A telephone call is welcome, but it is not a reply, and I will not treat it as one.
9. In the meantime
9.1 Until the change is given effect, I will go on paying the existing EMI on its due date. Nothing in this letter is a reason for me to stop or reduce any payment, and I am not stopping any payment.
9.2 This letter is not a request to foreclose, prepay, transfer or restructure the loan, and it is not a complaint about interest already charged. It is a request to change the basis on which interest is charged going forward.
9.3 Nothing in this letter gives up any right I have under the loan agreement or in law, and nothing in it is an admission of any claim or liability.
Thank you. I have been a customer of this branch and I would prefer to stay one. Please deal with this as a straightforward repricing request, and tell me the number.
Yours faithfully,
___________________________
__________
Borrower
Phone: __________
Email: __________
Place: __________
Date: __________
Enclosures
- Copy of the sanction letter or loan agreement — the first page and the interest rate clause.
- Latest statement of the loan account, or the interest certificate for the last financial year.
- A dated print of your published rate card for a new loan of this kind.
ACKNOWLEDGEMENT OF RECEIPT
(To be signed by the branch on the borrower's copy when this letter is handed over. If it is posted, the registered post or speed post acknowledgement is the proof of delivery.)
Received the original of this application, with enclosures, on ________________ (date).
Inward / reference number: ____________________
Signature: _________________________
Name and employee code: ____________________
Branch stamp: