Generally, the banks charge penalty interest on the customers who fail to pay the EMI (Equated Monthly Installment) for the loans taken. Complaints have been received that these penalties are exorbitantly high!
Complaints are also received that sometimes, the penalties are over-exorbitantly high!
As such, the Reserve Bank of India (RBI) has banned the collection of the charging of penalty interest.
In a notification released by the Reserve Bank of India in this regard, it is mentioned:
“A fairly reasonable procedure MUST be adopted while charging penalty interest for the loans taken. In case the person who has availed of the loan fails to follow the Rules and Guidelines and a penalty is levied on him/her, only a penalty must be charged and NOT PENALTY INTEREST! This is because of an extra amount of interest on the loans taken!
The penalty charges MUST BE FAIR AND REASONABLE!
These penalties charged MUST be strictly adherent to the rules and guidelines of availing the loan. As such, NO ADDITIONAL PENALTY INTEREST MUST B COLLECTED BY THE BANKS!
At the same time, these rules and regulations will not apply to the Credit-card related loans or commercial loans.
The interest or penalty levied is just to ensure that the loaner must repay regularly as per the conditions and NOT AN AVENUE FOR THE BANKS TO EARN MORE BY THESE ADDITIONAL INTEREST PENALTIES!
The above new rules are to be implemented from the 1st of January 2024!”