RBI directs NBFCs and other banking institutions to review practices regarding mode of disbursal of loans, application of interests etc. in the light of Fair Practices Code

The Reserve Bank of India (“RBI”) has issued a notification directing NBFCs and other banking institutions (“REs”) to review their practices regarding mode of disbursal of loans, application of interest and other charges and take corrective action, including system level changes to address issues of unfair lending practices.

REs are also encouraged to use online account transfers in lieu of cheques being issued in cases for loan disbursal.

Further, REs are advised to refund the excess interest and other charges to customers, if any unfair practices similar to the following examples have been adopted by the REs:

  1. Charging of interest from the date of sanction of loan or date of execution of loan agreement and not from the date of actual disbursement of the funds to the customer. Similarly, in the case of loans being disbursed by cheque, instances were observed where interest was charged from the date of the cheque whereas the cheque was handed over to the customer several days later.
  2. In the case of disbursal or repayment of loans during the course of the month, some REs were charging interest for the entire month, rather than charging interest only for the period for which the loan was outstanding.
  3. In some cases, it was observed that REs were collecting one or more instalments in advance but reckoning the full loan amount for charging interest.

A copy of the notification is hyperlinked below for ease of reference.

Source: Reserve Bank of India

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