NBFC Advisor

RBI’s Framework on Penal Charges: A Move Towards Fair Lending

  • 29-Apr-2025
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The Reserve Bank of India (RBI) has introduced a new framework to regulate penal charges on loans — marking a significant shift toward more transparent and borrower-friendly lending practices.

 Key Highlights:

  • No More Penal Interest:
    Lenders are now required to levy penal charges instead of penal interest, ensuring greater transparency and proportionality.

  • Broad Scope:
    The framework applies to all types of loans, including working capital facilities and digital loans.

  • No Capitalization of Penal Charges:
    Penal charges cannot be added to the principal amount for the purpose of interest calculation.

 Impact on Lenders:

  • Revise and upgrade loan management systems

  • Update internal policies and loan agreements

  • Improve communication with borrowers regarding charges and compliance

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