The Reserve Bank of India (RBI) on April 29, 2024, notified regarding the Fair Practices Code for Lenders – Charging of Interest.
The guidelines on Fair Practices Code issued to various Regulated Entities (REs) since 2003, inter-alia, advocate fairness and transparency in charging of interest by the lenders, while providing adequate freedom to REs as regards their loan pricing policy.
During the course of the onsite examination of REs for the period ended March 31, 2023, the Reserve Bank came across instances of lenders resorting to certain unfair practices in charging of interest.
The following are the unfair practices observed and briefly explained below:
• Charging of interest from the date of sanction of loan or date of execution of loan agreement and not from the date of actual disbursement of the funds to the customer. Similarly, in the case of loans being disbursed by cheque, instances were observed where interest was charged from the date of the cheque whereas the cheque was handed over to the customer several days later.
• In the case of disbursal or repayment of loans during the course of the month, some REs were charging interest for the entire month, rather than charging interest only for the period for which the loan was outstanding.
• In some cases, it was observed that REs were collecting one or more instalments in advance but reckoning the full loan amount for charging interest.
Therefore, in the interest of fairness and transparency, all REs are directed to review their practices regarding mode of disbursal of loans, application of interest and other charges and take corrective action, including system level changes, as may be necessary, to address the issues highlighted above.
[Notification NO. RBI/2024-25/30 DoS.CO.PPG.SEC.1/11.01.005/2024-25]
