Banks will not be able to add penalty on default in loan repayment

Mumbai | Banks will no longer be able to add the penalty (punitive fee) imposed on the loan default to the principle amount. Banks will now have to charge this fee separately. The RBI issued a draft circular for banks on Wednesday. This decision will help in curbing the additional interest levied on the borrowers in case of default in repayment of loans. The RBI issued a draft circular stating that the amount of this fee should be proportionate to the extent of default/non-compliance with the terms and conditions of the loan contract. Banks have the freedom to implement a Board approved policy for recovery of this fee under the extant RBI guidelines.

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