The Reserve Bank of India (RBI) on April 12 issued draft rules on penal charges related to loan accounts.
Draft Guidelines on Loans by RBI
#1) As per the update, the quantum of penal charges shall be proportional to the defaults/ non-compliance of material terms and conditions of loan contract beyond a threshold.
#2) The central bank further said that this threshold is to be determined by the regulated entities (REs) and shall not be discriminatory within a particular loan or product category.
#3) Further, RBI said that the penal charges in case of loans sanctioned to individual borrowers, for purposes other than business, shall not be higher than the penal charges applicable to non-individual borrowers.
#4) Penal charges, and the conditions precedent therefor, shall be clearly disclosed by REs to the customers in the loan agreement and most important terms & conditions / Key Fact Statement (KFS).
#5) On complaints against non-banking financial companies (NBFC), RBI said that the nature of these complaints is generally pertaining to charging of high interest / penal charge and said that NBFCs shall mention the penalties charged for late repayment in bold in the loan agreement.
#6) For Housing Finance Companies (HFC), RBI said that HFCs should transparently disclose to the borrower all information about fees/ charges payable for processing the loan application. Also, HFCs should convey in writing the details of the loan to the borrower in the vernacular language or a language as understood by the borrower.