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RBI Issues New Norms for Penal Charges on Loan Accounts.

Banking & Finance | Dated: 23 Dec 2025

The Reserve Bank of India (RBI) has issued new guidelines regarding penal charges on loan accounts. Under the new norms, penalties for non-compliance with loan terms must be treated as "penal charges" and not as "penal interest". This prevents the capitalization of penal charges, meaning no further interest can be computed on such charges.

🎯 Key Highlights:

  • The quantum of penal charges must be reasonable and commensurate with the non-compliance.
  • These instructions apply to all Commercial Banks, Co-operative Banks, and NBFCs.
  • The new rules will come into effect from April 1, 2026, to ensure fair lending practices.

💡 Other Important Facts:

  • Guideline: Fair Lending Practice.
  • Change: Penal Charges vs Penal Interest.
  • Objective: Consumer Protection.

📚 Test Your Knowledge:

According to RBI's new guidelines, penalties on loans should be levied as "Penal Charges" and not as what?

Correct Answer: Penal Interest

🚀 Quick Recap:

About RBI

  • Governor – Shaktikanta Das
  • Established – 1935