The Reserve Bank of India (RBI) stated on Wednesday that any fine imposed for a borrower’s indiscipline or negligence in repaying a loan should be compensated by penal charges that are reasonable and transparent, rather than by penal interest rates, which were frequently added to the rate of interest being charged on advances.
The central bank further stated that the penalty fees will not be added to the outstanding principal amount but rather collected from the borrower separately.
However, the lender is allowed to change the credit risk premium in accordance with the current interest rate recommendations in the event that the borrower’s credit risk profile worsens.
The central bank has stated that it will soon create rules for criminal penalties. M. Rajeshwar Rao, Deputy Governor of the RBI, stated, “We are attempting to create guidelines which would ensure that there will be a transparent and uniform approach to the problem of punitive charges.”
