RBI News: RBI gave a big relief to the people troubled by the high interest on loans, pulled up the banks

News, Digital Desk- RBI has proposed to curb the heavy penalty interest rates imposed by banks for not repaying the loan. Till now, banks used to charge this fee arbitrarily from the borrowers, which caused them a lot of trouble. 

Condemning this practice of banks, RBI has presented a new proposal to save the borrowers from these excessive charges, which will prove to be a big relief for them.

In this draft circular, RBI has said that the penalty should be levied as a single fee and not as compound interest.

Banks were acting arbitrarily

RBI has found that banks are abusing their right to impose fines on borrowers, and using it as a tool to raise revenue. The central bank said in its draft circular that many regulated entities (banks and NBFCs) are charging penal interest rates, which is not justified. RBI's aim is now to direct banks to use penal charges only to maintain credit discipline and not to earn profits.

'The circular said, 'The penalty interest rate in addition to the original interest rate should not be used as a revenue growth tool. However, reviews have shown that there are different rules among regulated entities regarding the levy of penal interest. This has led to complaints and disputes among customers.'

There will be no penalty in the form of interest rate-

The Reserve Bank of India has proposed that now the penalty in case of default will not be charged in the form of penalty interest rate. 

The circular said that regulatory guidelines on determination of interest rates, including the conditions for resetting interest rates on loans, should be strictly followed. Also, institutions will not introduce any additional component for the interest rate.

Relief to borrowers-

The Reserve Bank of India (RBI) has issued a circular stating that there will be no additional interest on penalty charges. Till now, borrowers have to pay interest on the penalty amount as well.