Penal Charges Not Disclosed in Loan Agreement
Your lender has charged you penal interest or penal charges for a missed EMI or default that were not clearly disclosed in your loan agreement, or are being charged on the entire loan amount instead of just the overdue portion.
⚖️Your Rights Under RBI Regulations
As of April 1, 2024, penal charges must be levied only on the overdue amount — not on the entire outstanding loan balance.
Penal charges cannot be capitalised — they cannot be added to the principal and then attract further interest.
All penal charges must be prominently disclosed in the loan agreement, Key Fact Statement, and sanction letter.
Regulated entities cannot levy penal charges in the name of "penal interest" — it must be a flat fee on overdue amount only.
💰 What You Can Recover
Refund of all penal charges that were undisclosed or calculated on the wrong base (entire loan vs overdue amount).
⏱ Response Deadline
30 days for written complaint response.
📋Step-by-Step — What to Do
Review your loan agreement, sanction letter, and Key Fact Statement for penal charge disclosures.
Calculate the correct penal charge (on overdue amount only) versus what was actually charged.
Write to the lender with specific charge dates and amounts, citing RBI/2023-24/50.
Escalate to Nodal Officer then RBI Ombudsman if unresolved.
🏛 Where to Escalate If Bank Doesn't Respond
RBI Integrated Ombudsman — cms.rbi.org.in
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