RBI tells banks to stop charging extra interest on loans as probe shows unfair practices

The Reserve Bank of India (RBI) on Monday directed banks and NBFCs to instantly evaluate their practices to be certain that they’re honest and clear within the interest they cost clients as a number of situations have been detected the place extreme interest has been charged on loans.

The RBI has identified in its round that in the course of the course of an onsite examination of regulated entities (banks, NBFCs and housing finance firms) for the interval ended March 31, 2023, it got here throughout situations of lenders resorting to sure unfair practices in charging interest.

“Therefore, within the interest of equity and transparency, all regulated entities are directed to evaluate their practices concerning mode of disbursal of loans, software of interest and different fees and take corrective motion, together with system stage modifications, as could also be crucial, to handle the problems highlighted above,” the RBI round states.

Some of the unfair practices that the RBI has noticed are:

1. Charging of interest from the date of sanction of mortgage or date of execution of mortgage settlement and never from the date of precise disbursement of the funds to the shopper. Similarly, within the case of loans being disbursed by cheque, situations had been noticed the place interest was charged from the date of the cheque whereas the cheque was handed over to the shopper a number of days later.
2. In the case of disbursal or reimbursement of loans in the course of the course of the month, some banks had been charging interest for the whole month, somewhat than charging interest just for the interval for which the mortgage was excellent.
3. In some circumstances, it was noticed that banks had been accumulating a number of installments prematurely however reckoning the total mortgage quantity for charging interest.

The RBI mentioned these and different such non-standard practices of charging interest which aren’t in consonance with the spirit of equity and transparency whereas coping with clients, is a trigger for “severe concern”.

Wherever such practices have come to mild, the RBI by way of its supervisory groups has suggested banks, NBFCs and housing finance firms to refund such extra interest and different fees to clients, the central financial institution mentioned.

The lenders are additionally being inspired to use on-line account transfers in lieu of cheques being issued in just a few circumstances for mortgage disbursal, the RBI mentioned.

(With inputs from IANS)