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Home Personal Finance RBI extends deadline for implementing guidelines on penal charges in loan accounts

RBI extends deadline for implementing guidelines on penal charges in loan accounts

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The central bank had in August issued a circular on ‘Fair Lending Practices – Penal Charges in Loan Accounts’, saying it would come into effect from January 1, 2024.



The Reserve Bank of India (RBI) on Friday extended the deadline for banks and non-banking financial companies (NBFCs) to implement the revised norms for levying punitive charges on loan accounts by three months, till April 1, 2024. The central bank had in August issued a circular on ‘Fair Lending Practices – Penal Charges in Loan Accounts’, saying it would come into effect from January 1, 2024.

“However, the deadline for implementation of these directions has been extended by three months in view of some regulated entities (REs) seeking some clarifications and additional time to reshape their internal mechanisms and implement the circular,” the RBI said. The decision has been taken.”

Accordingly, regulated entities (banks and NBFCs) have been asked to ensure that these instructions are implemented in respect of all new loans taken from April 1, 2024. RBI said that in case of existing loans, the new penal charge regime should be implemented on the next review/renewal date falling on or after April 1, 2024, till June 30.

Concerned over the activities of banks and NBFCs using penal interest as a revenue enhancing measure, the Reserve Bank had on August 18 amended the norms. Under these, lenders will be able to impose only ‘reasonable’ penal charges on default in repayment of loans. It was said that banks and other lending institutions will not be allowed to charge penal interest from January 1, 2024.

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