The Reserve Bank came across instances of lenders resorting to certain unfair practices in charging of interest. The regulator found that lenders have been charging 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.

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

The Reserve Bank mentioned that these and other such non-standard practices of charging interest are not in consonance with the spirit of fairness and transparency while dealing with customers. These are matters of serious concern to the Reserve Bank. Wherever such practices have come to light, RBI through its supervisory teams has advised lenders to refund such excess interest and other charges to customers. Lenders are also being encouraged to use online account transfers in lieu of cheques being issued in a few cases for loan disbursal.

In the interest of fairness and transparency, the RBI directed all the regulated lenders to review their practices regarding mode of disbursal of loans, application of interest and other charges and take corrective action, including system level changes, as may be necessary

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