Explained | RBI’s draft guidelines on penal charges for loans
The Hindu
The RBI has introduced new draft guidelines for the levy of penal charges instead of the existing penal interest imposed by banks on customers if they default on their loans
The story so far: Central banking regulator Reserve Bank of India (RBI) on April 12 introduced for public consultation draft guidelines for the levy of ‘penal charges’ instead of the existing ‘penal interest’ imposed by banks on customers for defaulting on loan payments. The guidelines were issued following an announcement made (on February 8) in the Statement on Developmental and Regulatory Policies. Stakeholders can send their comments to the regulator by May 15.
According to the draft guidelines, penalties charged for default on interest payments or non-compliance of material terms and conditions of loan contract by the borrower would now be accrued as ‘penal charges’ instead of ‘penal interest’. The latter was levied in addition to the rate of interest charged on borrowings.
To put it simply, lending entities would not be able to levy an ad-hoc additional penal rate of interest over and above the applicable rate of interest.
For perspective about penal interest: say the borrower’s EMI payment for the month of April is Rs 1,000 at 10% interest rate. They default on making a timely EMI payment which subjects them to an additional interest payment of 24% per annum (or 2% per month) over and above the interest component (at 10% of principal amount) already payable that month.
The draft guidelines direct that ‘penal interest’ (at 2% p.a. in the example) be replaced with an ‘penal charge, with no additional component to the rate of interest. RBI also stated in the circular that there shall be no capitalisation of penal charges, that is, it shall be levied separately and not be added to the principal outstanding amount.
The quantum of penal charges must be proportional to the defaults or non-compliance of material terms and conditions of a loan contract up to a certain threshold. This is to be determined by the lending entities themselves and must not be discriminatory within a particular loan/product category.
The penal charges for loans to individual borrowers, for non-business purposes, cannot be higher than the penal charges applicable to companies and organisations. This must be disclosed to the customers in the loan agreement and the Key Fact Statement (KFS), while also being displayed on their websites, enlisting the various interest rates and service charges.
GCCs keep India’s tech job market alive, even as IT services industry embarks on a hiring moratorium
Global Capability Centres, offshore subsidiaries set up by multinational corporations, mostly known by an acronym GCCs, are now the primary engine sustaining India’s tech job market, contrasting sharply with the hiring slowdown witnessed by large firms in the country.
India’s manufacturing sector underperforms compared to China and South Korea, partly due to public sector wages that raise costs and reduce competitiveness.
Non-Resident Indians (NRIs) from the Gulf Cooperation Council (GCC) region, once prominent investors in the Indian equity market are seen shying away due to rupee depreciation and have moved to global funds, said a top financial services executive.
Mobile phones are increasingly migrating to smaller chips that are more energy efficient and powerful supported by specialised Neural Processing Units (NPUs) to accelerate AI workloads directly on devices, said Anku Jain, India Managing Director for MediaTek, a Taiwanese fabless semiconductor firm that claims a 47% market share India’s smartphone chipset market.
In one more instance of a wholly owned subsidiary of a Chinese multinational company in India getting ‘Indianised’, Bharti Enterprises, a diversified business conglomerate with interests in telecom, real estate, financial services and food processing among others, and the local arm of private equity major Warburg Pincus have announced to collectively own a 49% stake in Haier India, a subsidiary of the Haier Group which is headquartered in Qingdao, Shandong, China.
Indian stock markets closed lower amid volatility, with key firms lagging as global trends influenced trading activity.
Bharti and Warburg Pincus invest in Haier India, acquiring a 49% stake to enhance growth and innovation in consumer durables.
India's net FDI remains negative for October 2025, with outflows surpassing inflows amid trade deal uncertainties.
Bombay High Court halts fraud notices to Anil Ambani, questioning banks' compliance and the audit's validity.
Explore the key business events that defined India in 2025, from trade wars to regulatory reforms and corporate expansions.
The rarely-used eight-unit Fisk power plant owned by Houston-based NRG Energy was scheduled to retire next year. But then came from artificial intelligence.
The rupee gains 12 paise to 89.51 against the U.S. dollar, buoyed by RBI's liquidity support.
In a recent conversation with Dwarak Rajagopal, Head of AI Research at Snowflake, what stood out was not optimism or scepticism, but maturity.