Bank loan default: New rules related to penalty on bank loan default will be applicable from April 1

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The new rules related to penalty on default of loan taken from bank or NBFC will come into effect from April 1 this year. Giving information about this on Monday, the Reserve Bank of India (RBI) said that the revised fair lending system, which prevents banks and non-banking financial companies (NBFCs) from imposing punitive charges on loan default for revenue growth, has been amended. It will be implemented from April.

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According to Bhasha news, banks and non-banking financial companies have been imposing penal charges on default in loan payments as a means of increasing revenue.

Banks will be able to impose only ‘reasonable’ default charges

According to the news, concerned about this trend of penalty charges, RBI had amended the norms on August 18 last year, under which banks or NBFCs will be able to levy only ‘reasonable’ default charges. Banks, NBFCs and other RBI regulated entities were given an extension of three months till April to implement these revised norms. In a set of frequently asked questions (FAQs), the RBI said that in case of existing loans also, these instructions will be applicable from April 1, 2024.

Penal fee has to be reasonable

The Reserve Bank of India has also said that the change in the new penalty fee system will be ensured on the renewal date coming by June. Regarding the August 2023 guidelines also being applicable in case of default in loan repayment, RBI has said that such default is a violation of important terms and conditions of the repayment agreement, hence penal charges can be imposed. But this penal charge can be imposed only on the defaulted amount and will have to be reasonable.

No good for those who deliberately default

IBA and NESL are working on such a system with the help of which loan defaulters can be declared defaulters in a fast track manner. The Bank will provide additional information to the Information Utility Services regarding loan accounts which have been identified as fraud. According to NESL data, default is highest in loans ranging from Rs 10 to Rs 100 crore in the country.

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