The Indian Reserve Bank (RBI) has brought such cases, exposing the waiving of unfair practices by banks charging borrowers excess interest. During the period of RBI’s report release up until March 31, 2023, banks sometimes charged interest not from the date of actual loan disbursement but from the date of loan sanction or execution of loan agreement.
Moreover, under the old cheque payment system, the interest used to accrue from the day the cheque was issued, not the day it was given to a customer, if, for any reason, the transaction took longer.
The RBI has directed Banks and diversified financial services companies to mitigate the systems and procedures on loan disbursement, used interest and other charges.
Development of such transformation plans carries a large amount of responsibility as they will mainly fold the organization’s strategies and SKUs into one system and adopt power distribution processes, the personnel of which may need to be trained in some new skills.
The RBI, which requires fair business practices and believes in bank transparency, advises customers in the affected area to be reimbursed for any excess interest and other charges.
The Fair Practices Code rules have been in the limelight since 2003 as they create the standards for fairness and transparency in interest charging by financial institutions.
The central bank should thoroughly consider non-standard practices that violate the RBI’s framework ethical guidelines. For example, the central bank instructs idle banks to use electronic transfers instead of cheques for the safety of loan distribution.
