RBI Asks Lenders To Refund Excess Interest and Other Charges, Stop Charging Extra Interest on Loans

Moneylife Digital Team 29 April 2024

Investor Interest

After coming across instances of lenders resorting to certain unfair practices in charging interest, Reserve Bank of India (RBI) has directed all regulated entities (REs) to review their practices regarding the mode of disbursal of loans, application of interest and other charges and take corrective action, including system-level changes, as may be necessary.

In a notification, RBI says during onsite examination of REs for the period ended 31 March 2023, it came across instances of lenders resorting to certain unfair practices in charging of interest. This includes REs charging interest from the date of loan sanction or date of execution of loan agreement and not from the date of actual disbursement of the funds to the borrower.

Similarly, in the case of loans being disbursed by cheque, instances were observed where interest was charged from the date of the cheque, whereas the cheque was handed over to the customer several days later.

In the case of disbursal or repayment of loans during the course of the month, RBI says some REs were charging interest for the entire month rather than charging interest only for the period for which the loan was outstanding. In some cases, it was observed that REs were collecting one or more instalments in advance but reckoning the full loan amount for charging interest, it added.

RBI says these and other such non-standard practices of charging interest are not in consonance with the spirit of fairness and transparency while dealing with customers. "These are matters of serious concern to RBI. Wherever such practices have come to light, RBI, through its supervisory teams, has advised REs to refund such excess interest and other charges to customers. REs are also being encouraged to use online account transfers in lieu of cheques being issued in a few cases for loan disbursal."

"In the interest of fairness and transparency, all REs are directed to review their practices regarding mode of disbursal of loans, application of interest and other charges and take corrective action, including system-level changes," RBI says.

Comments

User

anilsangeeta

9 months ago

bank dont give details of interest charges . they say it is computerize.
if i put fd in bank and want to WI draw bank give me less amount then my deposit .
bank now use practice of frezzing ac on name of kyc and dont pay intrest even on fd .