If you have taken a loan from a bank and have been unfairly charged extra interest on it for reasons such as delaying or missing out on your equated monthly instalment (EMI), then help is at hand.
With some banks levying an unfair rate of interest on their customers, including among others, charging interest from the loan agreement date rather than the loan disbursal date, Reserve Bank of India (RBI) has issued guidelines for all lenders, including banks and non-banking financial companies (NBFCs) to examine the practices concerning interest charges on loans. It issued a notification in this regard on April 29, 2024.
This move followed after it was discovered that banks had been unfairly charging interest on loans. These included, among others, charging interest from the approval or agreement signing date rather than from the actual disbursement date, charging interest from the cheque date instead of when the loan was received by the customer, imposing interest for the entire month even for loans active for a shorter duration, and collecting advance instalments while charging interest based on the entire loan amount. These practices came to light during the RBI onsite examinations, for the period ending on March 31, 2023.
Says Raj Khosla, founder and managing director (MD), MyMoneyMantra.com: “The RBI has barred lenders from charging extra interest or interest on interest if a customer misses a repayment. However, banks and financiers can impose a penal charge on missed or delayed loan repayments. With RBI’s mandate in place, instances of extra interest charged are rare. However, RBI’s guidelines exclude foreign currency loans and advances, and export credit in domestic or foreign currencies.”
So, if you have been charged extra interest by a bank on either your home loan, personal loan, or auto loan, here’s what you can do:
As a first step, reach out to your lender’s customer service department to inquire about the extra interest charges. Put together all relevant documentation, including loan statements, payment receipts, and your loan agreement, to support your case. Request a detailed explanation and breakdown of the charges. If you believe the interest was calculated incorrectly, request the lender to recalculate the interest based on the agreed terms of your loan agreement. If there is an error, the lender should be able to correct it. Do this over email so that there is a proper documentation trail of the issue.
If the issue remains unresolved at the first level, approach the grievance redressal officer. Lastly, escalate the matter to the RBI ombudsman.
Says Adhil Shetty, CEO, BankBazaar.com: “If initial customer service interactions do not resolve the issue, escalate the matter to the lender’s grievance redressal officer. The lender is typically expected to resolve the issue within 30 days. In case it fails to address your concerns satisfactorily, you can raise the matter with the integrated ombudsman of the RBI.
Moreover, there can be penal charges for various things such as cheque dishonour, delayed repayment, failure of auto-pay, etc. Such charges are irreversible as banks can continue to impose these penalties to maintain the credit behaviour of customers.
Adds Khosla: “There can be occasions wherein a bank or NBFC may levy extra interest in case the disbursal is made by post-dated cheque, but the interest has started accruing from the date of loan sanction. In this case, you can contact your respective lender and ask it to rectify the error as soon as possible.”
According to experts, regulated entities must disclose the complete quantum and reason for penal charges to the customer at the time of the loan agreement, non-compliance reminder, and in the statement when charged.
“If a regulated entity imposes penal charges/ interest you can recheck the rates from their website under interest rates and services charges. In case of any discrepancy, a query can be raised with the R regulated entity. The charges applicable under the same category of loan cannot be different, and the charges applicable to individuals cannot be more than that to a corporation. This move is made by the RBI to promote fairness in lending practices and for REs to have predefined non-discriminatory rules,” says Amar Ranu, head - investment products and insights, Anand Rathi Shares and Stock Brokers.
