<p>In an attempt to encourage fairness, transparency, and accountability in the lending operations of financial institutions, the Reserve Bank of India (RBI) has released extensive recommendations addressing punitive charges in loan accounts.<img decoding=”async” class=”alignnone wp-image-131614″ src=”https://www.theindiaprint.com/wp-content/uploads/2023/08/theindiaprint.com-new-fair-lending-criteria-are-published-by-rbi-rbi-cracked-the-whip-on-icici-others-for-flouting-norms-but-was-ignored-rti-1-11zon-750×500.jpg” alt=”theindiaprint.com new fair lending criteria are published by rbi rbi cracked the whip on icici others for flouting norms but was ignored rti 1 11zon” width=”1395″ height=”930″ srcset=”https://www.theindiaprint.com/wp-content/uploads/2023/08/theindiaprint.com-new-fair-lending-criteria-are-published-by-rbi-rbi-cracked-the-whip-on-icici-others-for-flouting-norms-but-was-ignored-rti-1-11zon-750×500.jpg 750w, https://www.theindiaprint.com/wp-content/uploads/2023/08/theindiaprint.com-new-fair-lending-criteria-are-published-by-rbi-rbi-cracked-the-whip-on-icici-others-for-flouting-norms-but-was-ignored-rti-1-11zon-1024×683.jpg 1024w, https://www.theindiaprint.com/wp-content/uploads/2023/08/theindiaprint.com-new-fair-lending-criteria-are-published-by-rbi-rbi-cracked-the-whip-on-icici-others-for-flouting-norms-but-was-ignored-rti-1-11zon-768×512.jpg 768w, https://www.theindiaprint.com/wp-content/uploads/2023/08/theindiaprint.com-new-fair-lending-criteria-are-published-by-rbi-rbi-cracked-the-whip-on-icici-others-for-flouting-norms-but-was-ignored-rti-1-11zon-150×100.jpg 150w, https://www.theindiaprint.com/wp-content/uploads/2023/08/theindiaprint.com-new-fair-lending-criteria-are-published-by-rbi-rbi-cracked-the-whip-on-icici-others-for-flouting-norms-but-was-ignored-rti-1-11zon.jpg 1200w” sizes=”(max-width: 1395px) 100vw, 1395px” title=”New fair lending criteria are published by RBI 3″></p>
<p>All commercial banks, including Small Finance Banks, Local Area Banks, Regional Rural Banks, Primary (Urban) Co-operative Banks, Non-Banking Financial Companies (NBFCs), and All India Financial Institutions are subject to these regulations.<br />
The RBI’s action is a part of its continuous initiatives to guarantee that borrowers are handled fairly and to resolve consumer complaints resulting from inconsistent methods of levying penalty fees.</p>
<p>Financial institutions must abide by the major tenets under the new regulations.</p>
<p>According to the rules, any fine levied for failing to comply with important terms and conditions of a loan contract must be classified as “penal charges” rather than “penal interest.”</p>
<p>This implies that the rate of interest imposed on the advances should not include punitive charges, and no additional interest should be calculated on such charges.</p>
<p>The severity of the penalty should be appropriate for the degree of non-compliance. The loan agreement’s terms and conditions, as well as the Key Fact Statement (KFS), should make these fees apparent to clients.</p>
<p>Additionally, they must to be clearly stated in the interest rates and service fees part of the financial institution’s website.</p>
<p>Financial institutions must develop a punitive charges or comparable charges on loans policy that has been authorized by the board. This policy should explain the justification for the fees, the standards for establishing their amount, and how they apply to various loan and product categories.</p>
<p>By requiring that punitive costs for loans sanctioned to individual borrowers (for reasons other than business) not be greater than those applicable to non-person borrowers facing comparable non-compliance, the standards maintain fairness.</p>
<p>When sending warnings for breaching important terms and conditions, financial institutions must make sure to make explicit to borrowers the penalties that will be levied.<br />
Any incident of the application of punitive sanctions and the justifications for such sanctions should also be reported.</p>
<p>The implementation of these guidelines will begin on January 1, 2024. Financial institutions are required to make the necessary revisions to their policy frameworks and ensure that the new rules are followed for any new loans that are obtained or renewed after the effective date.<br />
On the next review or renewal date, or six months from the implementation date of these instructions, whichever comes first, existing loans will switch to the new punitive charges regime.<br />
With these rules, the RBI hopes to improve transparency, ensuring that punitive penalties are used to instill credit discipline rather than as a tool for increasing income, and align financial institution operations with customer-centric concepts.</p>
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