RBI, by way of a Press Release dated April 29, 2024, alerted all Regulated Entities (‘REs’) to review their practices regarding mode of disbursal of loans, application of interest and of other charges. The release makes note of specific instances of unfair practices wherein REs have charged interest: (i) from the date of sanction of the loan or date of execution of the loan agreement, instead of the date of actual disbursement of funds to customers; (ii) from the date of the cheque, where the cheque was handed over to the customer several days later (in case of disbursal by cheque); and (iii) for the entire month, rather than charging interest only for the period for which the loan was outstanding, in case of disbursal or repayment of loans during the course of the month. Additionally, the RBI noted that REs have been collecting one or more instalments in advance but reckoning the full loan amount for charging interest.

In light of the ‘Fair Practices Code’, the RBI has advised REs to be cautious in their practices, and accordingly, has directed REs to refund such excess interest amount to customers, take corrective action, including system level changes, as may be necessary, to address these issues.