Introduction: The Reserve Bank of India (RBI) has issued a significant update regarding fair lending practices related to penal charges in loan accounts. This development is in reference to RBI circular DoR.MCS.REC.28/01.01.001/2023-24 dated August 18, 2023.
Detailed Analysis:
1. Background: The circular initially outlined instructions set to take effect from January 1, 2024, concerning penal charges in loan accounts. However, acknowledging the need for additional time and clarifications, the RBI has decided to extend the implementation timeline by three months.
2. Implementation Timeline Extension: As per paragraph 3 (viii) of the circular, regulated entities (REs) now have until April 1, 2024, to fully implement the revised instructions. For fresh loans availed after this date, the new penal charges regime must be in effect. In the case of existing loans, the transition should occur on the next review/renewal date, falling on or after April 1, 2024, but no later than June 30, 2024.
3. FAQs for Clarity: Recognizing the need for clarity, the RBI will be releasing a set of frequently asked questions (FAQs) to address queries and provide additional insights related to the implementation of the circular. These FAQs will be available on the RBI website shortly.
Conclusion: This extension of the timeline reflects the RBI’s commitment to ensuring a smooth transition for regulated entities in adapting to the revised fair lending practices. By providing additional time and clarifications, the RBI aims to facilitate a seamless implementation process, ultimately contributing to a fair and transparent lending environment. Entities affected by these changes are advised to stay informed and prepare for the upcoming adjustments to avoid any disruptions in their loan operations.
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Reserve Bank of India
RBI/2023-24/102
DoR.MCS.REC.61/01.01.001/2023-24
December 29, 2023
All Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks, excluding Payments Banks)
All Primary (Urban) Co-operative Banks
All NBFCs (including HFCs) and
All India Financial Institutions (EXIM Bank, NABARD, NHB, SIDBI and NaBFID)
Madam / Dear Sir,
Fair Lending Practice – Penal Charges in Loan Accounts: Extension of Timeline for Implementation of Instructions
Reference is invited to RBI circular DoR.MCS.REC.28/01.01.001/2023-24 dated August 18, 2023 on ‘Fair Lending Practice – Penal Charges in Loan Accounts’.
2. In terms of paragraph 3 (viii) of the circular, the instructions were to come into effect from January 1, 2024. However, considering that certain clarifications and additional time has been sought by some regulated entities (REs) to reconfigure their internal systems and operationalize the circular, it has been decided to extend the timeline for implementation of the instructions by three months. Accordingly, REs shall ensure that the instructions are implemented in respect of all the fresh loans availed from April 1, 2024 onwards. In the case of existing loans, the switchover to new penal charges regime shall be ensured on the next review/ renewal date falling on or after April 1, 2024, but not later than June 30, 2024.
3. A set of frequently asked questions (FAQs) providing clarifications related to implementation of the circular will be uploaded in the FAQs section of the RBI website shortly.
Yours faithfully,
(Santosh Kumar Panigrahy)
Chief General Manager
