The Reserve Bank of India (RBI) has prohibited banks and NBFCs from charging additional interest on loans to customers. Banks and NBFCs have been directed by the Reserve Bank of India (RBI) to be fair and transparent in terms of interest charged to customers. RBI asked banks to review their actions. The RBI said that we have come across several instances of people charging interest on loans in excess of the fixed limit.
In its circular, the RBI said that there have been instances of lenders resorting to certain unfair practices in charging borrowers extra interest. The matter came to light during the onsite inspection of regulated entities (banks, NBFCs and housing finance companies) for the period ending March 31, 2023. The RBI, through its supervisory teams, has advised banks to refund such excess interest and other charges to customers.
In its circular, the RBI has said that, for fairness and transparency, all regulated institutions are directed to review their practices regarding application of interest, methods of disbursement of loans etc. be done on
Some of the unfair practices observed by RBI are as follows:
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* Interest to be charged from the date of sanction of loan or the date of execution of loan agreement and not from the date of actual disbursement of interest to the customer. In loans which are disbursed by cheque, it is found that the interest is charged from the date of the cheque, while the check is handed over to the customer several days later.
* In case of disbursement or repayment of loan during the month, some banks are not charging interest only for the period for which the loan was outstanding.
*In some cases, it was observed that one or more installments had already been collected by the bank, but the entire loan amount was being calculated for payment of interest.
The RBI said that this way of charging interest is non-standard practices. Such practices are not consistent with the spirit of fairness and transparency towards customers, which is a matter of “serious concern”.
The central bank said that banks, NBFCs and housing finance companies have been advised by the RBI to refund such excess interest and other charges to customers wherever such practices have come to light.
The RBI said there are also cases in which lenders are being encouraged to do online direct account transfers instead of checks for disbursal of loans.
