RBI gives 3 more months breather to banks, NBFCs
In the case of existing loans, the RBI said the switchover to new penal charges regime should be ensured on the next review/ renewal date falling on or after April 1, 2024, but not later than June 30, 2024.
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MUMBAI: The Reserve Bank on Friday granted three more months up till April 1, 2024 to banks and NBFCs to implement the modified norms for levying penal charges in loan accounts, as part of fair lending practice.
Concerned over the practice of banks and non-banking financial companies using penal interest as a revenue enhancement tool, the RBI on August 18 had modified the norms and issued a circular on ‘Fair Lending Practice - Penal Charges in Loan Accounts.’ It was to come into effect from January 1, 2024. “However, considering that certain clarifications and additional time has been sought by some regulated entities (REs) to reconfigure their internal systems and operationalise the circular, it has been decided to extend the timeline for implementation of the instructions by three months,” the RBI said. Accordingly, regulated entities, which include banks and NBFCs, have been asked to ensure that the instructions are implemented in respect of all the fresh loans availed from April 1, 2024 onwards.
In the case of existing loans, the RBI said the switchover to new penal charges regime should be ensured on the next review/ renewal date falling on or after April 1, 2024, but not later than June 30, 2024.
It further said the quantum of penal charges “shall be reasonable and commensurate with the noncompliance” of material terms and conditions of loan contract without being discriminatory within a particular loan/product category.
Also, there should be no capitalisation of penal charges — no further interest computed on such charges.
The instructions do not apply to credit cards, external commercial borrowings, trade credits and structured obligations which are covered under product-specific directions.
