In the new year comes a new change that will bring relief to bank customers. It is customary for banks to prescribe repayment terms while giving loans. In case of non-compliance or delay in complying with the prescribed conditions, there is a method of charging penalty interest. Penalty interest charged in this way is found to be between 2% and 4%. This is above normal fixed interest. Moreover, penal interest and compound interest are applicable as on ordinary interest. Realizing that this is a huge burden on customers and realizing that a rational change is needed in this regard, the Reserve Bank issued new instructions to banks and other financial institutions in August 2023. Accordingly, in case of non-compliance with the terms of the loan, banks and other financial institutions may charge only the penalty amount and not the penalty interest. Interest should not be charged on this. According to the revised guidelines, banks were advised to collect the charge from January 1, 2024 in this regard.
But considering the demand of financial institutions for more clarity and more time to implement the new instructions, the revised instructions have been applied to the new loans given from January 1. The time to comply with the new guidelines on existing loans is till June 30, 2024. If the existing loans are renewed before this, the new instructions must be followed from that day.
How do banks look?
The new proposals are reassuring for bank customers. But not so happy for financial institutions. According to the banks, penalty interest is more effective for customers who have taken loans to comply with the terms. It is also true that penalty interest was another source of income for the banks. The central bank has made it clear in the new decision that while admitting that there is a need for discipline in terms of loans and that failure to do so can result in penalties, clients’ non-compliance with loan terms should not be seen as a source of income.
Will the penalty be the same in all banks?
According to the new guidelines, the penalty amount should be commensurate with the nature of the loan and the seriousness of the non-compliance. Each bank can determine the amount of penalty with the approval of the board of directors. The Reserve Bank has only specified that the penalty amount should be reasonable. Hence there may be fluctuations in this regard from bank to bank.
The new guidelines are not applicable to credit cards.
The author is a banking and finance expert. kallarakkalbabu@gmail.com
English Summary:
No Penal Interest New Loan Takers
2023-12-31 02:07:15
#Relief #borrowers #penalty #interest #January
