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RBI circular on Fair Practices Code for Lenders –Charging of Interest • Dated : 29th Apr 2024
Applicable On
All Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks, excluding Payments Banks)
All Primary (Urban) Co-operative Banks, State Co-operative Banks and Central Co-operative Banks
All NBFC’S (including Housing Finance Companies)
Effect of this circular
Regulated Entity (RE’s) can only charge the interest from the date of loan disbursal in bank.
In case customer make the prepayment, interest benefit must be given to the borrower
Interest cannot be charge from the date of cheque handover to borrower but from the date of cheque liquidation
If loan is disbursed in tranches the interest should be charged on tranche wise not on entire approval amount
Interest cannot be charge from date of sanction or date of agreement execution
Interest cannot be charged for full month in case prepayment/ advance payment of EMI , it has to be on prorata basis for the period for which the loan was outstanding
RBI through its supervisory teams has advised REs to refund such excess interest and other charges to customers
RE’s are advised to review their system and make the correction.
The directive need to be implemented with immediate effect
Key Obligations / Compliances
Interest charge calculation on prorate basis instead of monthly
If payment received in advance remaining period interest has to be reckoned with Principal balance
Even if customer is making the advance payment, interest need to be charged on pro-rata basis.
Even if customer is making last EMI advance, interest benefit must be passed to the customers
Full month interest /remaining period interest cannot be charged , this specifically happening in STPL loan
LMS LOS must be make necessary changes
Extra charged interest need to be refunded to the borrower
if you are an NBFC or Fintech and looking for help on compliance, feel free to contact us at info@assistfin.com
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