BTL 792 - Pre Approved Personal Loan (PAPL)

 

The Banking Tutor’s Lessons

BTL 792                                                                   09-06-2025

Pre Approved Personal Loan (PAPL) 

PAPL (Pre-Approved Personal Loan) is a type of personal loan offered by Banks. 

RBI has framed guidelines to  ensure transparency and fair lending practices. These guidelines cover various aspects, including loan application assessment, disclosure of terms and conditions, grievance redressal, and monitoring of compliance. 

Lenders must thoroughly assess the creditworthiness of borrowers, going beyond just margins and security stipulations. 

The lender should clearly communicate the credit limit and terms and conditions to the borrower and document their acceptance. 

All terms, conditions, and caveats of the loan agreement should be in writing, certified by an authorized official, and a copy must be provided to the borrower. 

The loan agreement should clearly specify any credit facilities that are solely at the discretion of the lender. 

Banks must disclose the annualised rate of interest/Annual Percentage Rate (APR) in the Key Fact Statement (KFS) and the loan agreement, along with the possible impact of benchmark interest rate changes. 

RBI mandates that lenders allow borrowers to prepay or foreclose their loans, but they can charge fees. These charges should be transparently communicated to borrowers during the loan sanctioning process. 

Lenders must have an efficient grievance redressal mechanism, including designated officers to handle complaints and an escalation matrix for unresolved issues. 

Complains must be resolved within 30 days.

The RBI conducts regular audits and inspections to ensure compliance with its guidelines. 

Banks and NBFCs are required to submit periodic reports on their personal loan portfolios, including details on loan disbursements, interest rates, default rates, and other relevant metrics. 

Banks and NBFCs must conduct internal audits to ensure adherence to RBI guidelines and address any non-compliance issues. 

During periods of financial hardship, the RBI guidelines allow for debt restructuring, where lenders may extend the repayment period or reduce the interest rate, but borrowers must be informed of the terms and implications. 

The RBI introduced analysts lending and promoted a cap on Loan-to-Income ratios at 50% for unsecured personal loans, ensuring that the total EMIs do not exceed 50% of the borrower's net monthly income. 

RBI's latest directions on digital lending require loan service providers to provide a digital view of all loan offers from regulated entities that match the borrower's request, ensuring transparency and enabling borrowers to make informed choices. 

Sekhar Pariti

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