RBI has released new guidelines for penal charges and interest on loan accounts. These are effective from April 1, 2024. This will be a big relief to loan borrowers.
The main objective of this new rule is to prevent banks and non-banking financial companies (NBFCs) from charging unfair Penal charges. RBI felt that some institutions were charging excessive charges on loan defaults to increase their revenue. This new rule will not only protect the customer but will also bring transparency in the system.
Policy of ‘Reasonable’ default Charges
As per the new guidelines, financial institutions can now charge only ‘reasonable’ default fee. This is the result of amendments made on 18 August last year. Institutions were given time till April 2024 to implement these new rules.
Limits of Penal charges
RBI has clarified that penal fee can be levied only on the unpaid amount. This fee should be reasonable and cannot be levied on the entire loan amount. This rule will also apply in cases of default in loan repayment.
Action against willful defaulters
However, for those who deliberately do not pay the loan, this new rule will not bring any relief. The Indian Banks Association (IBA) and National e-Governance Services Limited (NESL) are developing a system to identify such people and declare them as defaulters quickly.
Defaulter status in large loans
According to NESL data, loans between 10 to 100 crore have the highest rate of default in India. This fact points to negligence in repaying loans on the part of large borrowers. The new RBI rules try to address this problem as well.
Important tips for customers
- Pay your EMIs on time.
- If there is a problem in payment in any month, contact the bank immediately.
- Understand & read the terms and conditions of your loan.
- Do not take multiple loans unnecessarily.
Conclusion
This RBI move is a big relief for loan borrowers. This rule will not only prevent unfair penal charges but will also bring transparency and fairness in the system. Public will trust financial institutions more and will feel more secure. These new RBI guidelines are a big reform in Indian financial sector.
These rules will not only protect customers but will also make financial institutions more responsible and transparent. This will ultimately be good for the country’s economy as it will create a healthy and reliable financial ecosystem.