Charging of interest rates: RBI detects overcharging by banks, asks them to refund borrowers

The Reserve Bank of India (RBI) has come across instances of lenders resorting to certain unfair practices in charging of excess interest from borrowers. The RBI, through its supervisory teams, has advised banks to refund such excess interest and other charges to customers.

During the course of the onsite examination of banks and Non-Banking Financial Corporations (NBFCs) for the period ending March 31, 2023, the RBI found that banks were 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, the RBI said.

In the case of disbursal or repayment of loans during the course of the month, some banks were charging interest for the entire month, rather than charging interest only for the period for which the loan was outstanding. It was also observed that banks were collecting one or more instalments in advance but reckoning the full loan amount for charging interest.