If you have also obtained a loan from the bank, this information would bring you some solace. The Reserve Bank of India (RBI) announced that banks will not be able to capitalize on the penalty levied for loan default, providing clients with some respite. Banks have historically added a penalty fee to the principal amount in cases of loan failure. Later, banks added interest to that amount. But now that the banks have been issued a directive by the RBI, clients will feel better.
Not be included in the unpaid principal
The bank will now need to reclaim the penalty charge separately. And it won’t be added to the outstanding principal. In accordance with the new RBI guideline. The Reserve Bank (RBI)’s action will aid in reducing the additional interest charged to consumers in the event of loan default. According to the RBI’s draught circular on “Unfair Lending Activities – Penal Fee in Loan Accounts”. The amount of the penalty fee shall be proportionate to the severity of the loan agreement’s essential terms and conditions being violated or defaulted upon.
Loan Lenders are able to put into effect
a board-approved procedure for recovering penalty fees under the current RBI guidelines. The central bank has released a draught to organize these actions. According to the draft, the goal of applying penalties is to instill a feeling of credit discipline among borrowers and to compensate lenders fairly. It went on to say that the penalty fee is not a way to earn more money than the agreed-upon interest rate.
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