This follows findings that many REs are using penal rates of interest, over and above the applicable interest rates, in case of defaults/non-compliance by the borrower with the terms on which credit facilities were sanctioned. “The intent of levying penal interest/charges is essentially to inculcate a sense of credit discipline and such charges are not meant to be used as a revenue enhancement tool over and above the contracted rate of interest,” the RBI said in a circular. “However, supervisory reviews have indicated divergent practices amongst the REs with regard to levy of penal interest/charges leading to customer grievances and disputes,” it added. And the quantum of penal charges shall be reasonable and commensurate with the non-compliance of material terms and conditions of loan contract without being discriminatory within a particular loan / product category. “Whenever reminders for non-compliance of material terms and conditions of loan are sent to borrowers, the applicable penal charges shall be communicated. Further, any instance of levy of penal charges and the reason therefore shall also be communicated,” the RBI circular said. And the REs have been asked to carry out appropriate revisions in their policy framework and ensure implementation of the instructions in respect of all the fresh loans availed/ renewed from the effective date. In the case of existing loans, the switchover to new penal charges regime will be ensured on next review or renewal date or six months from the effective date of this circular, whichever is earlier, the circular said. These instructions will, however, not apply to Credit Cards, External Commercial Borrowings, Trade Credits and Structured Obligations which are covered under product specific directions, the RBI has clarified. These instructions will come into effect from January 1, 2024. |
Originally Posted by anjan_c2007
(Post 5615600)
The Reserve Bank of India (RBI) has issued a new directive for banks non-banking finance companies (NBFC's) and other lenders that come under the RBI Act 1934, as Regulated Entities (RE's) to ensure transparency for borrowers in respect of loans for which defaults take place while repaying. According to the new directive, penalty if charged for non-compliance of material terms and conditions of loan contract by the borrower would be treated as 'penal charges' and shall not be levied in the form of 'penal interest' that is added to the rate of interest charged on the advances. RBI said the new directives follow findings that many REs are using penal rates of interest, over and above the applicable interest rates, in case of defaults/non-compliance by the borrower with the terms on which credit facilities were sanctioned. The newslink:- https://www.thehindu.com/business/rb...le67208498.ece |
Originally Posted by Lalvaz
(Post 5615651)
A few questions which I'm confused about: 1) How will things change? 2) Will the penal interest % reduce as a result of this move OR will it be just rebadging the penal interest to penal charge? 3) Will this impact the settlement amount in case of default and subsequent settlement of delinquent accounts? 4) Will it reduce or increase bank NPA's? 5) Will it reduce or increase bank's profit margins? Thank you in advance. |
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