RBI exposes banks’ ‘unfair practices’, says some lenders levy interest on loans from date of sanction, not disbursement

financialexpress.com:

The Reserve Bank has found some lenders indulged in ‘unfair practices’ with regard to disbursement and repayment of loans. The apex bank has warned regulated entities (REs) against charging of interest from the date of loan sanction and not from the actual disbursement date, according to an RBI circular issued on April 29.

All commercial banks, including small finance banks, local area banks and regional rural banks, are categorised as regulated entities by the RBI. Payments banks don’t come under this purview.

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“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,” the RBI said.

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, the notification said.

In the case of 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, the RBI said.

“These and other such non-standard practices of charging interest are not in consonance with the spirit of fairness and transparency while dealing with customers,” the apex bank emphasised, saying these are “matters of serious concern”.

Wherever such practices have come to light, the RBI through its supervisory teams has advised REs to