RBI Directs Banks To Review Practices For Excess Interest Charge On Loans
New Delhi: The Reserve Bank of India (RBI) on Monday, directed banks to review their practices regarding mode of disbursal of loans, application of interest and other charges. Concerned over some banks and lenders resorting to unfair practices in charging interest, the RBI has instructed them to take corrective. action and refund excess charges to customers.
“..In the interest of fairness and transparency, all Res (regulated entities) 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, as may be necessary, to address the issues concerning charging of interest,” the circular said.
During its on-site inspections of REs, the RBI noted that interest was being levied from the date of loan sanction or execution of loan agreement, rather than from the actual date of fund disbursement to the customer. The RBI also discovered instances where interest was applied from the date of the cheque issuance, even though the cheque was given to the customer several days later.
In situations where loans were disbursed or repaid within a month, some REs were found to be charging interest for the full month instead of just the duration the loan was outstanding. There were also cases where REs collected one or more instalments in advance, yet calculated interest based on the total loan amount.
The RBI expressed concern over these unfair and non-standard interest charging practices, stating they were not in line with the principles of fairness and transparency in customer dealings. The central bank emphasized that such practices were of grave concern. Whenever such practices have been identified, the RBI’s supervisory teams have instructed REs to refund any excess interest and other charges to customers.
The circular also encouraged REs to opt for online account transfers instead of issuing cheques in certain cases for loan disbursement. The circular takes effect immediately, the central bank added.
