RBI New Guidelines For Loans: The Reserve Bank has amended the loan rules, saying that if the penalty is charged for default in payment by the customer taking the loan, it will now be considered as ‘penal fee’, it will be considered as ‘punitive’. shall not be charged as ‘interest’.
Many examples of how a person gets ruined in the clutches of Loan App have come to the fore recently. In Bhopal, a whole laughing family got destroyed by getting trapped in this debt trap. Giving relief to the loan borrowers regarding all these incidents, the Reserve Bank of India (RBI) has issued new guidelines regarding the penalty imposed on the delay in loan repayment. Under this, customers will not have to pay penalty for defaulting on loan repayment. Let us know in detail about the guidelines of RBI.
RBI changed the penalty rules
Concerned over the long-standing practice of banks and non-banking financial companies (NBFCs) using penal interest as a means of raising revenue, the Reserve Bank of India (RBI) on Friday issued new rules. Said that in case of default in loan payment, banks will be able to levy only ‘reasonable’ penal charges. The central bank has banned the imposition of penalty on loan accounts.
New rules will be applicable from January 1, 2024
According to RBI, the guidelines regarding Penal Charges in loan account will be effective from January 1, 2024. These new rules will apply to all banking institutions regulated by RBI. These include all Commercial Banks, Co-Operative Banks, NBFCs, Housing Finance Companies and Exim Bank, NABARD, NHB, SIDBI All India Financial Institutions like (Sidbi) and NABFID are involved.
New rules came into force on credit cards
Amending the rules, the Reserve Bank has said in its notification that banks and other lenders will not be allowed to impose penalties from January 1, 2024. It states that if the penalty is charged for non-compliance of the terms and conditions of the loan agreement by the borrower, the same will now be treated as ‘penal fee’ and will not be charged as ‘penal interest’, Which is added to the rate of interest charged on advances. However, these new instructions will not apply to credit cards and business credit.
Understand in this way how RBI gave relief
If we understand the new guidelines of RBI as an example, then tell that the penalty is imposed on the loan when a customer defaults in paying his due installment or EMI on time. Meaning if the EMI of the person taking the loan for the month of August is Rs 1,000 at 10% interest rate on the Loan Amount. So in case of default in payment on due date, they will have to pay an additional or penal interest of 24% per annum. Its amount will be 2 per cent per month and it will be in addition to the 10 per cent interest already payable.
At the same time, according to the revised rules by RBI, the penalty interest of 2 percent, which is charged for defaulting on timely payment of EMI of the loan, will be converted into penalty charge. In this, no additional component will be added to the interest rate to be paid by the borrower. Significantly, in April 2023, the Reserve Bank had issued a draft for penal charges. However, this will not affect the normal process of compounding interest in the loan account.
Received frequent complaints from customers
The Reserve Bank has mentioned in the notification that many units regulated by RBI use penal interest rates in addition to the applicable interest rates in case of default or non-compliance on the part of the borrower. In this regard, the number of complaints received from the customers is increasing continuously. The central bank, while amending the rules, has clearly stated that the intention of levying penal interest/fee is essentially to inculcate a sense of credit discipline and such a fee should not be used as a means of raising revenue other than the contracted interest rate. should be done.
The central bank gave these instructions
In its new guidelines, apart from giving relief from penalties, RBI has said that regulated entities (REs) will be permitted to set up a board for approving penal charges or similar charges on loans, by whatever name called. be known from It will be mandatory for RES to clearly indicate the amount and reason for the penal fee to the customers in the loan agreement and most importantly in the terms and conditions/Key Fact Statement (KFS).
Apart from this, it will be highlighted on the RES website under interest rates and services. Not only this, whenever reminders are sent to the borrowers for non-compliance of important terms and conditions of the loan, applicable penal charges will be informed. Apart from this, the reason for levy of penal fee will also be given.
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