The Reserve Bank of India (RBI) has introduced a revised framework for banks and non-banking financial companies (NBFCs) to follow when dealing with borrowers who fail to pay their Equated Monthly Installments (EMIs) on time. Under the new rules, lenders can no longer impose "penal interest" on borrowers who miss payments. Instead, they are allowed to charge a "penal charge" under strict conditions.
The key changes to the framework include:
- No penal interest: Lenders cannot levy additional interest as a penalty for EMI delays.
- Only penal charge allowed: A fixed penal charge can be imposed, but it must not be added to the principal loan amount.
- No interest on penal charges: Financial institutions cannot charge extra interest on the penal charge itself.
- Mandatory compliance: All banks and NBFCs are required to follow these new norms.
The RBI has introduced these changes to eliminate unnecessary and arbitrary charges levied by lenders, providing borrowers with better clarity and protection. The new framework aims to make the loan process more transparent and provide borrowers with more flexibility and cost savings.
Additionally, banks and NBFCs are no longer allowed to include hidden clauses in loan agreements that force customers to maintain the loan for a minimum period. This change is expected to ease the financial stress on borrowers, especially in cases of unavoidable delays in EMI payments.
The revised framework ensures greater transparency and fairness in the lending process, and borrowers can expect to benefit from these changes. However, it is always advisable to consult with a certified financial advisor or the respective bank before making any decisions related to loans or banking, as RBI regulations are subject to periodic updates.