Home Loans, Mortgage Loans or any type of Loans, customer usually starts to make payment of Interest from the date of disbursement of loan even though they don’t receive actual funds in their bank accounts. Banks/NBFCs loan management system (LMS) starts charging interest on principal amount disbursed as per repayment schedule drawn post disbursement of loan in LMS. This results extra interest cost to customers as they need to pay interest for funds which are actually not credited in their bank account.
Fair Practices Code issued by RBI, advocates fairness and transparency in charging of Interest by the lenders while providing adequate freedom to Regulatory Entities as regards to their loan pricing policy. During the course of the onsite examination of Registered Entities (REs) for the period ended March 31, 2023, the Reserve Bank came across instances of lenders resorting to certain unfair practices in charging of interest. Â
| Practices Observed | Regulatory Stipulations |
| Charging of interest from the date of sanction of loan or date of execution of loan agreement and not from the date of actual disbursement of the funds to the customer. | (1) RBI through its supervisory teams has advised Regulatory Entities to refund such excess interest and other charges to customers. (2) REs are also being encouraged to use online account transfers in lieu of cheques being issued in a few cases for loan disbursal. (3) to review their practices regarding mode of disbursal of loans, application of interest and other charges and take corrective action, including system level changes, as may be necessary, to address the issues highlighted above. |
| In the case of loans being disbursed by cheque, instances were observed where interest was charged from the date of the cheque whereas the cheque was handed over to the customer several days later. | |
| In the case of disbursal or repayment of loans during the course of the month, some REs were charging interest for the entire month, rather than charging interest only for the period for which the loan was outstanding. |
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| It was observed that REs were collecting one or more instalments in advance but reckoning the full loan amount for charging interest. |
RBI Circular: RBI/2024-25/30Â DoS.CO.PPG.SEC.1/11.01.005/2024-25 April 29, 2024Â
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