EMI-RBI has made important changes in the EMI rules for loan takers. Now if a borrower misses an EMI payment or an EMI bounces, then… Read this guideline issued by RBI (Reserve Bank of India):
RBI has made important changes in the EMI rules for loan takers. Now if a borrower misses an EMI payment or an EMI bounces, then banks and non-banking financial companies (NBFCs) can only impose a penalty. No additional interest will be added to this penalty.
In a way, RBI has put a stop to the arbitrariness of banks. According to the bank, the penal interest (penalty APR) has been used by banks and non-banking financial institutions as a way to increase profits. This was causing problems for the borrowers. Now that the RBI has updated the rules for this, banks and NBFCs will be able to impose penalties on borrowers who miss EMI payments but will not charge interest from them.
RBI’s stand on penal interest
The Reserve Bank of India (RBI) has expressed concern over the excessive use of “penal interest” (penalty interest) by banks and non-banking financial institutions (NBFCs) to earn more profit. RBI has issued new rules. Under these rules, now banks can charge “reasonable” penalty charges on the customer only if there is a default in EMI payment. This step has been taken to protect consumers from unfair charges.
RBI issued a notification.
The Reserve Bank of India issued a notification, “Fair Lending Practices-Penal Charges on Loan Accounts,” stating that banks and other lending institutions will not be allowed to charge penal interest from the 1st date. RBI said that if the borrower does not comply with the terms of the loan agreement, then “penal charges” can be imposed on them. But no penal interest will be added to it. Let us tell you that till now the interest rates charged by banks on advance EMI also include penal interest.
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Banks will not be allowed to act arbitrarily.
The Reserve Bank of India (RBI) has clarified that the penal charges levied by banks should be reasonable and will not be applicable on any particular loan. According to the RBI notification, no additional interest will be charged on these charges, and they will not be capitalized. This rule will apply equally to all types of loans.
However, the new EMI instructions of the central bank will not be applicable to credit card payments, external commercial credit, business loans, etc. To instill a sense of discipline among borrowers regarding loans, the central bank said that penal interest/fees should be imposed. Banks should not use it as a means of increasing their income.