Confused by the recent changes in RBI regulations? You're not alone! In this blog, chartered accountant Vikas Jain breaks down the RBI's newest guidelines into easy-to-understand FAQs. Whether you're a business owner, an individual investor, or simply someone who wants to stay informed, this blog series will equip you with the knowledge you need to navigate the evolving financial landscape.
Demystifying the RBI's Decisions: What You Need to Know
CA Vikas Jain, a trusted financial expert, dives deep into the RBI's most recent pronouncements, addressing your burning questions in a clear and concise manner. This blog is your one-stop shop for understanding the implications of these new guidelines, empowering you to make informed financial decisions.
Stay Informed, Stay Ahead: A Look Ahead
This blog series not only clarifies the present but also casts an eye towards the future. By examining the potential ramifications of the RBI's choices, CA Vikas Jain provides valuable insights to help you prepare for what lies ahead.
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Today, I'll tell you about an important circular issued by the RBI on April 29, 2024. This circular provides guidelines to all banks, NBFCs, microfinance companies, and housing finance companies to ensure transparency and fair practices while charging interest.
The RBI conducted inspections of several banks and NBFCs and found that they were charging customers interest incorrectly. Some unfair trade practices were included: I'll explain each one by one.
Some banks and NBFCs were charging interest from borrowers based on the date of sanction or the date of agreement rather than the actual disbursement date.
Let's understand this with an example: Suppose a loan is approved on April 1, 2024, the agreement is signed on April 10, 2024, and the loan amount is credited to the account on April 15, 2024. In this case, many banks and NBFCs were charging interest from April 1, 2024, which is incorrect. RBI states that interest should be charged from the day the money is credited to the borrower's account.
In this case, RBI found that many banks and NBFCs disburse loans through cheques and start charging interest from the day the cheque is prepared, even though the actual payment is credited to the borrower's account days later.
For example, if a loan is approved on March 31, 2024, and the borrower's property registration is on April 15, 2024, some banks and NBFCs start charging interest from March 31, 2024, even though the actual money is credited to the seller's account on April 15, 2024.
In this way, some banks and NBFCs charge borrowers extra interest.
Some banks and NBFCs charge borrowers interest for the entire month, even though the actual loan disbursement happens in the middle of the month.
For example, if the actual loan disbursement is on April 15, 2024, some banks and NBFCs start charging interest from April 1, 2024, which is incorrect. Interest should be charged from the date the money is credited to the account.
If a borrower makes a loan EMI payment during the month, some banks and NBFCs charge interest for the entire month, which is incorrect. Interest should only be charged for the period for which the loan outstanding was.
Some banks and NBFCs deposit advance EMIs and charge interest on the entire loan amount. This is also inappropriate. Interest should only be charged on the loan amount actually disbursed.
The RBI has directed all banks and financial institutions to adhere to fair trade practices: they should not charge customers interest incorrectly.
Through this circular, the RBI has given strict instructions to banks and financial institutions. If any bank or NBFC has previously charged interest incorrectly, they now need to:
These instructions are effective immediately.
If you believe you have been charged interest incorrectly, you can contact your bank or NBFC and apply for a refund. If they do not listen to you, you can file a complaint with the RBI.
You can find the procedure for filing a complaint on the Reserve Bank of India's website.
This circular is good news for customers. It will compel banks and financial institutions to charge interest transparently and fairly.
If you are considering taking a loan, keeping information about this circular in mind will be beneficial for you. It will ensure that you are charged the correct interest.
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