RBI defers implementation of norms on penal charges levied by banks

The Reserve Bank of India (RBI) has deferred the implementation of norms regarding penal charges levied by banks and financial institutions to April 1, 2024, for new loans. This decision comes after requests from regulated entities.

Initially issued in August, these norms were set to be implemented from January 1, 2024.

“Considering that certain clarifications and additional time have been sought by some regulated entities (REs) to reconfigure their internal systems and operationalize the circular, it has been decided to extend the timeline for implementation of the instructions by three months,” the RBI stated on Friday.

The RBI has mandated that its regulated entities ensure the implementation of these instructions for all new loans availed from April 1, 2024, onwards.

“In the case of existing loans, the switchover to the new penal charges regime shall be ensured on the next review/renewal date falling on or after April 1, 2024, but not later than June 30, 2024,” the RBI added.

According to the norms, a penalty, if charged for non-compliance with the material terms and conditions of the loan contract by the borrower, should be categorized as ‘penal charges’. These charges shall not be levied in the form of ‘penal interest’ added to the interest rate on advances. Furthermore, no additional interest should be computed on such charges.