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Fair Practices Code: Lenders Asked To Carry Out Review

Taking cognisance of unfair practices adopted by lenders in charging of interest, the Reserve Bank of India (RBI) has directed regulated entities (REs) to carry out a review and address such issues.

The unfair practices observed by RBI include the charging of interest from the date of loan sanction or the date of execution of loan agreement instead of charging it from the date of actual disbursement, charging interest for the entire month rather than charging interest only for the period for which the loan was outstanding, etc. In light of the same, RBI has directed REs to review their practices regarding the mode of disbursal of loans, application of interest and other charges and take corrective action, including system-level changes to address the issues.

RBI issued this direction vide circular dated April 29, 2024, which highlights that the guidelines on the Fair Practices Code call for fairness and transparency in charging of interest by lenders. The said circular is addressed to all commercial banks excluding payments banks, and has come into force with immediate effect. It is also addressed to all primary (urban) co-operative banks, state co-operative banks, district central co-operative banks, and all non-banking financial companies.