What RBI said on excess interests charged by banks? All you need to know

The Reserve Bank of India (RBI) has asked banks and other lenders to review their practices regarding the mode of disbursal of loans, application of interest, and other charges after it came across instances of participants resorting to unfair practices in charging interest.

The central bank indicated in a notification that it has observed certain players charge interest from the date of sanction of the loan or the date of execution of the 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, it said.

The regulator also pointed out that in the case of disbursal or repayment of loans during the course of the month, some entities were charging interest for the entire month, rather than charging interest only for the period for which the loan was outstanding. Meanwhile, some entities were collecting one or more instalments in advance but reckoning the full loan amount for charging interest, the regulator pointed out.

“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, the RBI through its supervisory teams has advised regulated entities (REs) to refund such excess interest and other charges to customers,” it said.

The central bank has asked all regulated entities to take corrective action, including system-level changes wherever necessary to bring fairness and transparency.

Recently, the RBI had said in its draft circular for regulation of payment aggregators that beginning August 2025, no entity in the card transaction or payment chain, other than the card issuers and networks, can store the card-on-file (CoF) data.