Loan defaults: RBI pushes the deadline for new penal charges regime to April 1, 2024
Reserve Bank of India (RBI) has deferred the deadline for introduction of a new penal charges regime by three months from Jan 1 2024 to April 1, 2024. This extension has been given for the new loans, while the existing loans are meant to be migrated to the new penal regime by June 30, 2024. This was announced in a recent RBI notification released on Friday.
It is noteworthy to mention here that the banking regulator issued a detailed set of guidelines to prevent banks from charging a penal rate of interest in case of defaults by borrowers. “It has been decided to extend the timeline for implementation of the instructions by three months. Accordingly, REs (regulated entities i.e., banks) shall ensure that the instructions are implemented in respect of all the fresh loans availed from April 1, 2024 onwards.
In the case of existing loans, the switchover to new penal charges regime shall be ensured on the next review/ renewal date falling on or after April 1, 2024, but not later than June 30, 2024," reads the circular. The regulator released the guidelines after realising that the penal charges were being imposed by banks as a revenue enhancement tool instead of inculcating credit discipline among borrowers – which was supposed to be the key intent. The RBI guidelines released on August 18, 2023 stipulated that the penalty, if charged, for non-compliance will be treated as penal charges and not in the form of penal interest.
Also, there will not be any capitalisation of penal charges i.e., no further interest computed on such charges. The guidelines also stipulated that the quantum of penal charges will be reasonable and commensurate with the non-compliance without being discriminatory within a particular loan category. The
. Read more on livemint.com
