RBI to put cap on interest charged by banks on loan default

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The Reserve Bank of India has directed lenders not to levy interest over a certain amount on penal charges levied for non-repayment of loan. The RBI has clarified this will not affect the normal procedures for compounding of interest in the loan account.

The apex bank has said “Whenever reminders for payment of installments are sent to borrowers, the applicable penal charges shall also be communicated.” The RBI’s directive has come after borrowers reported lenders were levying hefty charges on loan default. These directives are currently not in force. These are just proposals. The RBI will take next decision on this matter after May 15, 2023.