Penal charges, not penal interest, on loan defaults Penal charges rule
Since 1 January 2024, a lender can only levy a reasonable penal charge for a missed payment or other breach of loan terms, not add penal interest to your rate, and it cannot charge interest on that penalty.
Last updated on
- Status
- Open
- Run by
- Reserve Bank of India
What you get
- No penal interest added to your loan rate
- No interest charged on penal charges
- Penal charges must be reasonable and in proportion to the breach
- The amount and the reason must be in the loan agreement, the Key Facts Statement and on the lender's website
- Reminders must state the penal charge that applies, and any charge levied must be told to you with the reason
Who can apply
- Applies to commercial banks other than payments banks, urban co-operative banks, NBFCs and all India financial institutions
- Business loans are covered. Credit cards, external commercial borrowings, trade credits and structured obligations are not
How to apply
- Check the penal charges in your loan agreement and Key Facts Statement
- If you find penal interest added to your rate or interest charged on a penalty, ask the lender in writing to reverse it
- If the lender does not reply within 30 days, or you are not satisfied, complain to the RBI Ombudsman at cms.rbi.org.in
In person, your lender's branch
In Kerala, applies to banks, urban co-operative banks and NBFCs lending in Kerala.
Where we found this
An independent guide by The Company of Four, not a government website. Schemes change often, so check every detail on the official website before you apply. Links marked ↗ open external websites that we do not run, and we are not responsible for their content. Seen something out of date? Tell us and we will look into it.