★The Reserve Bank of India (RBI) has issued a new notification stating that banks cannot charge interest on interest if customers delay their loan EMIs. The RBI has instructed banks and financial institutions to provide customers with the option to choose a fixed rate of interest when fixing interest rates for loans.
★The RBI has observed that banks increase the loan tenure or monthly installment (EMI) without properly informing customers or obtaining their consent. To address this concern, the RBI has asked regulated units to establish a policy framework.
★The RBI emphasizes that banks should inform customers about the potential impact of changes in the standard interest rate on their EMIs or loan tenure at the time of loan approval. Banks should promptly notify customers about any extension of EMI or loan tenure. Borrowers should also be given the option to extend their EMI or loan tenure.
★The RBI states that customers should be allowed to fully or partially repay the loan at any time during the loan tenure. The RBI aims to introduce a new structure where banks provide clear information about the loan period and monthly installments to borrowers.
★The RBI has also made it clear that banks or financial institutions cannot charge penal interest for late payment of EMIs in loan accounts. Banks should not use penal interest as a means to earn additional interest.
★The RBI has outlined specific rules and penalties for banks regarding non-compliance in loan accounts.
★The new instructions from the RBI will be applicable from 1 January 2024. Banks are required to make necessary changes to their policy framework and implement these instructions for all new loans taken or renewed from the effective date.
News Summary:
★RBI issues a notification on penalty charges for loan EMIs, prohibiting banks from charging interest on interest for delayed payments.
★Banks have been secretly increasing loan EMIs without proper customer notification or consent.
★RBI emphasizes the need for timely information to customers about changes in EMI or loan period.
★Customers are allowed to partially repay the loan at any time during the loan tenure.
★No penalty interest can be charged by banks for delayed EMI payments.
★Specific rules and penalties have been set by RBI for non-compliance in loan accounts.
★These instructions will be applicable from 1 January 2024, and banks must make necessary changes to their policy framework.
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