Why RBI is pulling up banks for unfairly charging extra interest on loans

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Canara Bank where he had his salary account. Kumar, a chartered accountant by profession, was promised by his bank relationship manager (RM) that his home loan of ₹70 lakh and home improvement loan of ₹8 lakh would be approved without any hassle. But there was one condition—Kumar should help the RM achieve his monthly target by agreeing to get the loan sanctioned a month in advance.

“I will get the demand draft (DD) made in September, but the loan will be disbursed in October when you need the money," Kumar’s RM said. Kumar purchased the house in October 2023. Kumar agreed to the advance sanction, but little did he know that he would have to shell out nearly ₹48,000 extra in interest.

“I was charged interest on both the home loan and the home improvement loan from the date of sanction. I was finally given the DD of the home loan 18 days later and the home improvement loan was disbursed three months later in December when I requested for it," said the 29-year-old. The bank might have charged pre-EMIs on the home improvement loan, but Kumar says he is not aware of this as the bank hasn’t explained the reason for charging interest on the home improvement loan when he did not request for disbursement until December.

An email sent by Mint to Canara Bank did not elicit any response at the time of filing this story. Each time Kumar raised the issue with his bank RM, he was promised that the interest would be reversed. A few months later, the RM was transferred, leaving Kumar in the lurch.

“The biggest mistake I committed was to not take this up with the bank via emails. All the communication was verbal with the RM. I will now lodge a complaint with the RBI (Reserve Bank of India)," said Kumar.