RBI's New Guidelines: CA Sakchi Jain Explains How to Ensure Fair Interest Charges

CA Sakchi Jain, a finance influencer, shares the RBI's new guidelines regarding the charging of interest. According to these guidelines, interest should be charged from the date of the sanction of the loan or the date of the execution of the loan agreement, not from the date of the actual disbursement of the funds to the customer. Many people are unaware of this new rule, which allows banks to take advantage.

Recently, the Reserve Bank found some lenders engaged in ‘unfair practices' regarding the disbursement and repayment of loans. The top bank has warned regulated entities (REs) against charging interest from the loan sanction date instead of the actual disbursement date, according to an RBI circular issued on April 29, 2024.

As a result, the Reserve Bank of India (RBI) has introduced immediate guidelines to ensure fairness and transparency in how banks charge interest. These measures address several unfair practices, including:

1. Charging interest from the loan sanction date rather than the actual disbursement date.

2. Charging interest for the entire month, regardless of the actual loan period.

3. Collecting installments in advance but charging interest on the full loan amount.

The RBI has mandated that all regulated entities review and rectify these practices to ensure interest is charged fairly and accurately. The RBI has also advised lenders to refund any excess interest collected and to use online transfers instead of cheques for disbursements. These steps are essential to protect customers and uphold transparent banking practices.

View this post on Instagram

A post shared by Sakchi Jain (@ca.sakchijain)

These RBI guidelines mark an important step toward fair and transparent banking practices. By addressing unfair and misleading practices such as charging interest from the loan sanction date and charging interest for the entire month, the RBI aims to promote a more suitable banking environment for customers.