look news india
RBI: Expressing concern over unfair practices adopted by some banks and financial institutions in charging interest, the Reserve Bank of India (RIB) directed them to take corrective steps and refund the excess charges. The guidelines issued on Fair Practices Code for Financial Institutions (REs) under the ambit of RBI advocate fairness and transparency in interest charging by lenders along with giving adequate freedom with respect to loan pricing policy.
The orders will come into effect immediately
The Central Bank issued a circular in this regard and said that its instructions will come into effect with immediate effect. The RBI said in the circular that during physical inspection of regulated entities for the period ending March 31, 2023, the Reserve Bank found instances of lenders resorting to certain unfair practices in charging interest. The central bank has directed all units to review their practices with respect to loan disbursement methods, interest charges and other charges and take steps such as systemic changes, if necessary.
Interest was being charged from the day of the loan agreement.
The RBI said investigations into banks and other lenders found that in many places, interest was being charged from the date of loan sanction or execution of the 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.
Interest from date of disbursement
RBI said that in case of loan disbursement or repayment 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 charge 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.
Terming this a matter of serious concern, RBI said, regulated entities are advised to refund the excess interest and other charges collected from customers. The central bank said banks are being encouraged to use online transfer of funds to the account instead of issuing checks for loan disbursement.