The Reserve Bank of India (RBI) moved the last day for starting the new penalty fee system from January 1, 2024, to April 1, 2024, giving an extra three months.
This extra time is for new loans. For the loans already there, they need to follow the new penalty rules by June 30, 2024.
They shared this information in a notice from RBI last week. The banking regulator has given clear rules to stop banks from charging extra money if people can’t pay back their loans on time.
The notice mentioned they decided to give three more months for following the rules.
So, banks (Regulated Entities or REs) should make sure to follow the instructions for all new loans starting from April 1, 2024.
For the loans already there, they need to switch to the new penalty rules at the next check or renewal date, which should be on or after April 1, 2024, but no later than June 30, 2024.
Guidelines issued for what?
The people who make the rules noticed that banks were using penalty charges more for making money than making sure borrowers pay back loans on time, which was the main goal. So, they made new rules to fix that.
The rules from RBI, given on August 18, 2023, say that if they give a fine for not following the rules, it will be called a penalty fee and not a penalty interest. Also, they won’t add extra interest on these penalty charges.
The rules also say that the amount of the fine will be fair and match the seriousness of not following the rules. They won’t treat different types of loans differently when deciding on the fine.
The rules said that for loans given to people for things other than business, like personal loans, the fine won’t be higher than the fine given to businesses for the same rule-breaking.
To stop banks from charging random amounts of interest, they must have a policy approved by their board for extra fees on loans.
It’s important to mention that these rules won’t apply to special credit cards with different instructions.
These guidelines were supposed to start from January 1, 2024, but now they will begin on March 31, 2024.
