RBI directs banks to stop charging penal interest
31 Dec 2023
Reserve Bank of India (RBI) has directed banks to stop charging penal interest rates on delayed loan repayments and instead charge additional interest for the delayed period, beginning 1 April 2024.
The new instructions were to come into force on 1 January 2024. The RBI has decided to defer the date of implementation of the instructions by three months as banks and other regulated entities have sought clarification and additional time for implementation.
RBI had on 18 August 2023, issued a circular on ‘Fair Lending Practice - Penal Charges in Loan Accounts’, where it had referred to 1 January 2024 as the date of implementation.
However, some banks and other lenders, including non-banking financial companies, have sought certain clarifications and additional time to reconfigure their internal systems and operationalise the circular.
RBI has asked financial institutions to ensure that the instructions are implemented in respect of all the fresh loans availed from 1 April 2024 onwards. In the case of existing loans, the switchover to new penal charges regime shall be ensured on the next review/ renewal date falling on or after 1 April 2024, but not later than 30 June 2024.
Payments Infrastructure Development Fund (PIDF): RBI also announced an extension of the Payments Infrastructure Development Fund (PIDF) scheme by two years.
The PIDF scheme was operationalised in January 2021, for a period of three years. The objective of the scheme was to encourage deployment of payment acceptance infrastructure such as physical Point of Sale (PoS) terminals, Quick Response (QR) codes, in tier-3 to tier-6 centres, North Eastern states and union territories of Jammu & Kashmir and Ladakh.
From 26 August 2021, the scheme also covered beneficiaries of PM Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi Scheme) in tier-1 and tier-2 centres.
