The Reserve Bank of India (RBI) has implemented new guidelines regarding penalty charges on loans from September 1, 2024. Now banks and NBFCs will be able to levy only ‘reasonable’ default charges, which will provide relief to customers. This rule has been made to increase the transparency of financial institutions and prevent them from charging unfair fees.
RBI New Guideline: From September 1, 2024, new guidelines of the Reserve Bank of India (RBI) have come into effect, which have been made regarding penalty charge and penal interest on loan accounts. This new step is expected to provide great relief to the loan holders. This effort of RBI is to stop the tendency of charging unfair fees by banks and non-banking financial companies (NBFCs).
Purpose of the rule
This step of RBI has been taken to protect the interests of the customers. Its main objective is to ensure that banks and financial institutions do not levy unfair punitive charges in case of default. This rule has been designed to bring transparency in the functioning of banks and to avoid putting unnecessary financial burden on the customers.
What is ‘reasonable’ default charge?
According to the new rules, banks and NBFCs will now be able to charge only ‘reasonable’ default charges. This means that if a customer defaults on loan payment, he will be charged only on the defaulted amount. Under the amendments made on August 18, 2023 last year, these rules were given a deadline of April 2024 to be implemented.
Limits of penalty charge
RBI has also clarified that the basis for calculating the penalty charge will now be only the outstanding amount. Banks or NBFCs will not be able to levy arbitrary punitive charges in cases of default in loan repayment. Such charges are levied when the terms of the loan payment agreement are violated. Therefore, customers who do not repay their loans on time will also be required to follow this rule.
Strict action against wilful defaulters
However, this new guideline is not a relief for those who deliberately do not pay the loan. To take strict action against such customers, the Indian Banks Association (IBA) and National e-Governance Services Limited (NESL) are working on a system that will help identify defaulters faster.
Default situation in big loans
According to NESL data, India has the highest rate of default in loans between Rs 10 and 100 crores. These figures show that big borrowers are negligent in paying their loans. The new rules will help improve this situation as well, as it will not take much time for banks to declare defaulters and take action.
Tips for loan borrowers
Despite this new RBI guideline, loan borrowers should also be cautious themselves.
Always pay EMI on time.
- If you face financial difficulty in any month, contact the bank immediately.
- Understand all the terms of the loan contract thoroughly and clear any ambiguity.
- Do not take more loan than required, so that there is no difficulty in repaying it.
This new guideline of RBI will provide great relief to loan holders. Its purpose is to stop unnecessary and excessive punitive charges levied by financial institutions. This will not only protect the interests of the customers but will also increase transparency and discipline in the financial sector.
