The Reserve Bank of India (RBI) has granted three additional months to banks and Non-Banking Financial Companies (NBFCs) up till 1st April, 2024, for executing the modified norms for levying penal charges in loan accounts, as part of fair lending practice.
In August last year, the RBI had issued a circular on ‘Fair Lending Practice – Penal Charges in Loan Accounts’ and it was to come into effect from 1st January, 2024. Considering the certain clarifications and additional time sought by some Regulated Entities (REs) to reconfigure their internal systems and operationalise the circular, RBI had decided to extend the timeline for implementation of the instructions by three months.
Accordingly, REs, including banks and NBFCs, have been asked to ensure that the instructions are implemented in respect of all the fresh loans availed from 1st April, 2024 onwards. In the case of existing loans, the RBI said the switchover to new penal charges regime should be ensured on the next review/renewal date falling on or after 1st April, 2024, but not later than 30th June, 2024.
Further, the circular had mentioned that the banks and other lending institutions will not be allowed to levy penal interest with effect from 1st January, 2024.
