Lok Sabha Question No. 26 (UNSTARRED), answered on 2025-12-01
Subject: Personal Loans
Ministry: FINANCE
Asked by: Shri Sanatan Pandey

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA UNSTARRED QUESTION NO. † 26

ANSWERED ON MONDAY, DECEMBER 1, 2025/ AGRAHAYANA 10, 1947 (SAKA) Personal Loans

## †26. SHRI SANATAN PANDEY:

Will the Minister of FINANCE be pleased to state:

- (a) whether the Government considers advance- loaded amortization of personal loans as structurally unfair to financially responsible borrowers, if so, the details thereof;
- (b) whether the Reserve Bank of India has issued any directives to address ethical and economic concerns related to such practices, if so, the details thereof;
- (c) whether the Government is considering to review current loan amortization structures to ensure  transparency,  equitable  and  proportionate  to  the  actual  loan  term,  if  so,  the details thereof;
- (d) the  steps  being  taken  to  ensure  that  borrowers  are  adequately  informed  in  simple language about the financial implications of loan structures;
- (e) whether  the  Government  proposes  to  introduce  regulations  to  standardize  interest calculations based on outstanding principal rather than predetermined schedules; and
- (f)  if so, the details thereof?

## ANSWER

## THE MINISTER OF STATE FOR FINANCE (SHRI PANKAJ CHAUDHARY)

(a) to (f): Credit related matters of regulated entities (REs), including the manner of charging interest, are largely deregulated and the same are governed by the Board approved loan policies  of  the  lenders  framed  under  the  ambit  of  relevant  regulatory  and  statutory requirements and terms and conditions of the loan agreement between the borrower and the REs. Further, Reserve Bank of India (RBI) has issued several guidelines from time to time  in  order  to  ensure  that  the  process  of  fixing  and  charging  of  interest  rates  to  the borrowers is fair, transparent, and equitable for both parties. RBI guidelines also mandate that the interest rate must be charged on monthly rests, implying that interest needs to be calculated every  month  on the  outstanding principal balance  (including  any  accrued but unpaid interest).

Commercial  banks  in  India  usually  follow  the  standard  amortization  methodology  for repayment of personal loans. In the said methodology, interest is computed and charged only on the outstanding amount of each day. Any excess amount paid by the borrower over and above the scheduled EMI, is adjusted towards the principal, resulting in reduction in outstanding amount, entailing lower interest outgo. The 'amortized' nature of repayment of personal loans provides flexibility and ensures that borrowers can customize the repayment plan as per their financial strength and repaying capacity.

Further, the Fair Practices Code for lenders, issued by RBI, lenders should ensure that there is  proper  assessment  of  credit  application  and  they  should  furnish  a  copy  of  the  loan agreement  along  with  a  copy  of  all  enclosures  quoted  in  the  loan  agreement  to  all  the borrowers. Also, as per the notification by the RBI, Regulated Entities need to provide a Key Facts Statement (KFS) (applicable to all new retail and MSME term loans sanctioned on or after  1.10.2024)  containing  key  facts  like  computation  sheet  of  annual  percentage  rate (APR),  amortisation  schedule  of  the  loan  over  the  loan  tenor  etc.  to  all  prospective borrowers. The KFS enhances transparency and reduce information asymmetry on financial products  being  offered  by  different  REs,  thereby  empowering  borrowers  for  making  an informed financial decision. The KFS is to be written in a language understood by such borrowers and its contents are to be explained to the borrower and an acknowledgement is to be obtained that he/she has understood the same.

As per RBI's conduct of business regulations/ fair practices code for NBFCs, the regulations on interest rates on advances are based on the principles of fairness and transparency so that  an  informed  decision  could  be  taken  by  the  borrowers  before  entering  into  any relationship  with  NBFCs.  The  regulatory  approach  in  this  regard  has  evolved  towards making the Boards of the respective lending institutions more  responsible  and  ensuring greater transparency for the borrowers.

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