oppn parties RBI Clamps Down On Excessive Penalty Being Levied For Late Repayments By Borrowers

News Snippets

  • The Indian envoy in Bangladesh was summoned by the country's government over the breach in the Bangladesh mission in Agartala
  • Bank account to soon have 4 nominees each
  • TMC and SP stayed away from the INDIA bloc protest over the Adani issue in the Lok Sabha
  • Delhi HC stops the police from arresting Nadeem Khan over a viral video which the police claimed promoted 'enmity'. Court says 'India's harmony not so fragile'
  • Trafiksol asked to refund IPO money by Sebi on account of alleged fraud
  • Re goes down to 84.76 against the USD but ends flat after RBI intervenes
  • Sin goods like tobacco, cigarettes and soft drinks likely to face 35% GST in the post-compensation cess era
  • Bank credit growth slows to 11% (20.6% last year) with retail oans also showing a slowdown
  • Stock markets continue their winning streak on Tuesday: Sensex jumps 597 points to 80845 and Nifty gains 181 points to 24457
  • Asian junior hockey: Defending champions India enter the finals by beating Malaysia 3-1, to play Pakistan for the title
  • Chess World title match: Ding Liren salvages a sraw in the 7th game which he almost lost
  • Experts speculate whether Ding Liren wants the world title match against D Gukesh to go into tie-break after he let off Gukesh easily in the 5th game
  • Tata Memorial Hospital and AIIMS have severely criticized former cricketer and Congress leader Navjot Singh Sidhu for claiming that his wife fought back cancer with home remedies like haldi, garlic and neem. The hospitals warned the public for not going for such unproven remedies and not delaying treatment as it could prove fatal
  • 3 persons died and scores of policemen wer injured when a survey of a mosque in Sambhal near Bareilly in UP turned violent
  • Bangladesh to review power pacts with Indian companies, including those of the Adani group
D Gukesh is the new chess world champion at 18, the first teen to wear the crown. Capitalizes on an error by Ding Liren to snatch the crown by winning the final game g
oppn parties
RBI Clamps Down On Excessive Penalty Being Levied For Late Repayments By Borrowers

By Sunil Garodia
First publised on 2023-02-09 08:47:18

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.

The RBI has taken cognizance of the unhealthy practice of banks and other financial institutions to levy unreasonable penalty and upward revision of interest rates if borrowers fail to pay their commitments in time. It has categorically stated that the regulations governing this were put in place not to add an income stream for the financial institutions and banks but to instill discipline among borrowers. The apex bank said that it has received many complaints against banks and others to the effect that they were charging usurious amounts as penalty and also adding one or more percentage point to the interest being charged for the loan. Hence, the RBI said that it was issuing new guidelines in the matter to ensure that the penalty charged was reasonable and transparent and no top-up was made to the interest rate being charged.

It has been seen that many banks and financial institutions, apart from correctly charging for cheque or ECS mandate bouncing charges, levy a penalty which can go up to 100% of the EMI in default even if the sum is paid in the next few days. This is in addition to the matter being reported to rating agencies which results in the lowering of the credit profile of the borrower. Hence, it becomes a multi-edged sword which cuts the borrowers from all sides. The RBI has said that it has found that the practices were not uniform across the financial sector and some banks and institutions were charging excessively.

While banks and financial institutions are within their rights to penalize habitual defaulters they must recognize that a single default for a few days or a few similar defaults spread over a longerperiod can be due to various reasons beyond the control of the borrowers. They must be lenient on this score as long as the payment is received in a few days. Moreover, any such penalty must be reasonable and uniform across the sector and must be transparent. The RBI has said that it will now ensure that no top-up of interest rates happen if a penalty is levied. This is welcome.