Synopsis: The Reserve Bank of India's examination reveals unfair lending practices among banks and financial institutions, particularly concerning interest charging on loans. Instances include charging interest from loan sanction dates and collecting advance installments while levying interest on the full loan amount.
Banks and financial institutions, following an onsite review by the Reserve Bank of India, have been found engaging in unfair lending practices related to interest charging on loans.
Instances include charging interest from loan sanction or execution date rather than disbursement, charging interest from cheque date even if handed over later, levying interest for entire months regardless of actual loan duration, and collecting advance installments while charging interest for full loan amounts.
RBI directs refunds of excess interest and charges to customers, urges online loan disbursal, and mandates a review of lending practices with corrective actions.
Recent initiatives include the introduction of Key Fact Statements (KFS) for transparent loan information provision, effective from October 1, 2024, for new retail and MSME loans.
In conclusion, the Reserve Bank of India's onsite review uncovered concerning practices by banks and financial institutions regarding interest charging on loans.
These practices, including charging interest from loan sanction dates and collecting advance installments while levying interest on the full loan amount, are deemed unfair.
The RBI has directed corrective measures, including refunds to customers and transitioning to online loan disbursal.
Additionally, recent initiatives such as the introduction of Key Fact Statements aim to enhance transparency in lending practices, empowering borrowers with comprehensive loan information.
