Business News / Banks will not be able to charge expensive interest from you, RBI gave these strict instructions to banks

Vikrant Shekhawat : Apr 30, 2024, 07:47 AM
Business News: The Reserve Bank of India (RBI) has expressed strong objection to the charging of expensive interest by some banks and financial institutions. Expressing concern over the unfair practices of many banks in charging interest, the RBI on Monday directed them to take corrective steps and refund the excess charges. The guidelines issued on Fair Practices Code for Financial Institutions (REs) under the purview of RBI advocate fairness and transparency in interest charging by lenders along with adequate freedom with respect to loan pricing policy.

Instructions will come into effect with immediate effect

The central bank issued a circular in this regard saying that its instructions will come into effect with immediate effect. "During the physical audit of regulated entities for the period ending March 31, 2023, the Reserve Bank came across instances of lenders resorting to certain unfair practices in charging interest," the RBI said in the circular. The central bank has directed all units to review their practices regarding loan disbursement, interest charges and other charges and take systemic changes, if necessary. The Reserve Bank said that investigation of banks and other lenders found that in many places, interest is being 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 funds to the customer. There were also cases where interest was charged from the date of the cheque, while the check was handed over to the customer several days later.

Some banks are extorting money in this way

RBI said that in case of disbursement or repayment of loan during the month, some institutions were charging interest for the entire month instead of the outstanding period. In some cases, banks were depositing one or more installments in advance but calculating the entire loan amount to recover interest. RBI said such unfair practices and non-standard activities of charging interest are not in keeping with the spirit of fairness and transparency while dealing with customers. Calling this a matter of serious concern, the Reserve Bank said, "Regulated entities are advised to return the additional interest and other charges so charged to the customers."