Penal Interest: Till now, in case of loan default, the penalty fee is added to the principal amount by the banks, later banks also charge interest on that amount.
Reserve Bank of India: If you have also taken any type of loan from the bank, then this news will give you relief. While giving relief to the customers, the Reserve Bank of India (RBI) said that banks will not be able to capitalize the penalty imposed on the loan default.
Till now, in case of loan default, the penalty fee is added to the principal amount by the banks, later banks also charge interest on that amount. But after the order given by the RBI to the banks, now the customers will get relief.
Will not be added to the outstanding principal
According to the new rule of RBI, now the bank will have to recover the penalty fee separately and it will not be added to the outstanding principal. This step of the Reserve Bank (RBI) will help in curbing the additional interest levied on the customers in case of loan default.
RBI in its draft circular on ‘Unfair Lending Activities – Penal Fee in Loan Accounts’ said that the quantum of penalty fee should be commensurate with the extent of default/non-compliance of important terms and conditions of the loan agreement.
Under the extant RBI guidelines, lenders have the freedom to implement a board approved policy for recovery of penalty fee. The central bank has issued a draft to streamline these activities.
It has been said in the draft that the purpose of imposing penalty is to create a sense of credit discipline among the borrowers and to provide appropriate compensation to the lender. It further stated that the penalty fee is not a means of earning in addition to the contracted interest rate.
