The implementation of revised fair lending practices of the Reserve Bank of India (RBI) comes into effect from April 1, 2024. Henceforth banks and non-banking financial companies (NBFCs) cannot charge penalties for non-payment of EMIs or repayment of loans in the form of additional interest rates. However, they can charge it in the form of penal charges. These rules will prohibit banks and NBFCs from using penal charges on loan defaults as a revenue generation tool. As there were no uniform guidelines for charging penal interests several customers had complained that they were charged disproportionately to the default. The new rule will apply to all new loans from April 1, 2024. They will also apply to all pre-existing loans but only from June 30, 2024. It must be ensured that there is no capitalisation of the penal charges and no further interest computed on such charges, RBI said.