The Reserve Bank of India (RBI) on Monday (April 29) warned lenders for unfairly charging customers extra interest and told them to stop and refund any money they took unfairly.
RBI issued a letter to banks and non-bank finance companies. The central bank stated that it had been revealed that some lenders had levied interest from the date of loan sanction instead of actual disbursement.
Also Read | RBI directs review of unfair interest practices by financial institutions.
A lot of times, there is a lag between sanction and disbursement in a home loan or other loan, and charging it from the date of sanction imposes an additional interest cost on the borrower.
Charging interest from the date of loan sanction or loan agreement execution rather than from the date of actual disbursement is a violation of fair lending practices norms.