New rules for personal loan takers: RBI increased strictness

RBI has tightened the rules for customers repeatedly taking personal loans. Now it will be mandatory for banks and financial institutions to update the credit bureau records of customers within 15 days. Earlier this work was done in 30 days. The Reserve Bank says that this step will enable better assessment of the risk of borrowers and will make the financial system more transparent.

Effect of new rule

1. fast credit record updates
   According to experts, usually the loan EMI is paid on different dates in the month. Previously, credit records were updated once a month, which could cause a delay of up to 40 days for payment or delinquency information to appear.
   • Now updating within 15 days will reduce the problem of delay considerably.
   • Financial institutions will get instant information about default or payment status, thereby reducing their risk.
2. better credit assessment
   Frequent updating of records will enable lending institutions to understand the payment behavior of borrowers more accurately. With this, default cases can be controlled quickly.

The tendency to take loan on loan will be curbed

1. ban on evergreening
   Financial experts believe that this change will help in preventing cases of evergreening. Evergreening is a situation in which customers keep taking new loans instead of repaying the old loans.
   • Due to this their total loan amount increases.
   • Lending institutions face greater risk from such customers.

   Now, with timely updating of records, such cases will be identified quickly.

2. Less risk for banks and finance companies
   This step will increase the responsibility on the borrowers. The tendency to take new loans again and again will be controlled, which will reduce the risk of financial institutions and make the loan process more secure.

RBI instructions: Changes implemented in August

RBI had issued instructions for these changes in August 2023 and had given time till January 1, 2024 to banks and credit bureaus to implement them.

1. Transparency in data updates
   Earlier, customers taking new loans would often take multiple loans at once, which would lead to difficulty in repayment.
   • Now with the data being updated every 15 days, such behavior can be tracked in time.
   • This will give banks more information and confidence in giving new loans to customers.
2. attempt to improve the system
   This step of RBI will not only make the lending companies safer, but will also regulate the financial behavior of the customers.