Key Takeaways of RBI’s Draft Circular on Penal Charges on Loan Accounts

Are you tired of being hit with unfair and hidden penalties on your loan accounts? The Reserve Bank of India (RBI) is here to change that! In a ground-breaking move, the RBI vide Press Release no. 2023-2024/56 dated April 12, 2023 has released a draft circular on Fair Lending Practice – Penal Charges in Loan Accounts, aimed at establishing transparent and equitable practices for the imposition of penal charges. Get ready to say goodbye to the days of being charged unreasonable fees for defaulting on your loans, and hello to a new era of fairness and accountability in the lending industry!

Let us delve into draft guidelines and unfold the key takeaways of the draft circular which are as follows:

1. Regulated Entities (REs) to be prohibited from introducing additional components to interest rates

In order to curb the autonomy of lenders in levying interests, the RBI through its draft circular plans to ensure that the determination of interest rates on credit facilities, including conditions for resetting of interest rates, is strictly governed by the relevant regulatory instructions issued in this regard. The Regulated Entities (REs) shall not introduce any additional component to the interest rate.

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