The Reserve Bank of India (RBI) has issued a draft round on ‘Fair lending practice, penal charges on loan accounts’ to control penal curiosity levied by lenders.
“Supervisory reviews have indicated divergent practices among the regulated entities (REs) with regard to levy of penal interest leading to customer grievances and disputes.”
The RBI has instructed the REs for dedication of rates of interest on credit score services together with situation for reset of rates of interest, will likely be strictly ruled by the related regulatory directions issued in this regard.
“REs shall not introduce any additional component of rate of interest. Penalty if charged, for default and non-compliance of material terms and conditions of loan contract by the borrower shall be treated as penal charges and shall not be levied in terms of penal interest that is added to the rate of interest charged on the advances.”
“There shall be no capitalisation of penal charges which mean no further interest computed on such charges. However, this will not affect the normal procedures for compounding of interest in the loan account.” the draft round mentioned. Comments could also be submitted by May 15.2023.
