Reserve Bank has issued a notification on Penal Fee on Loan Account. In which RBI said that banks and other lenders will not be allowed to charge interest on penalty interest from January 1, 2024.
The Reserve Bank of India has given great relief to crores of borrowers of the country. RBI has instructed banks and ABFCs that if a borrower bounces EMI, then that fine can be imposed, but interest cannot be imposed on that fine. In fact, RBI has observed that banks and NBFCs have made Penal Trust a big weapon to increase their revenue. Because of which the borrowers have to face a lot of trouble. For this reason, RBI has issued revised guidelines in this matter. According to the new guidelines, banks and NBFCs will be able to impose fine on the EMI bounce of the loan, not the interest.
When will the rule apply
Reserve Bank has issued a notification on Penal Fee on Loan Account. In which RBI said that banks and other lenders will not be allowed to charge interest on penalty interest from January 1, 2024. RBI said in its notification that a penalty charge can be taken from the borrower for violating the terms of the loan contract. No interest will be charged on this. Interest on penalty is added to the interest rates charged on bank advances.
RBI gave advice to banks
Apart from this, the Reserve Bank has clarified that the penalty charge should be reasonable. It should not be biased towards any loan or product category. As per the notification, there will be no capitalization of penalty charge. Extra interest will not be calculated on such charges. However, these instructions of the central bank will not apply to credit cards, external commercial loans, business credit etc. The central bank said that the intention of levying interest/charge on penalty is to bring a sense of discipline in the borrower regarding the loan. This should not be used by the banks as a way to increase their revenue.
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