Key Points
The Reserve Bank of India's (RBI) latest guidelines on penal charges on loan accounts have come into effect from April 1..
The norms prohibit commercial banks and finance companies from charging borrowers penal rates on loan defaults or any other non-compliance event..
RBI has barred banks and finance companies from charging penal interest, often levied on customers for delays in payment of equated monthly instalments (EMI)..
RBI has allowed a lender to levy penal charges; however, banks must ensure that there is no capitalisation of the penal charges and no further interest computed on such charges...
However, RBI's supervisory review found that banks and finance companies impose penalties and charges to enhance their income, leading to customer grievances and disputes...
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