RBI MOVE TO IMPACT EXCESSIVE CHARGES ON SMALL / MEDIUM LOAN

The Reserve Bank of India’s (RBI’s) directive to banks to impose a ceiling on the interest charged including processing and other charges, on small value loans is expected to have a substantial impact on the rates charged and will bring more transparency. The proposed ceiling will pressurize them to clearly differentiate between interest charges and other service charges. Banks will now be required to tell the customers what the total out-go can be at the outset. They will not be able to levy any hidden charges. Bank boards have been given three months to work out suitable procedures to avoid charging high rates to customers. The move followed several complaints received by the RBI and the banking ombudsman offices about excessive interest rates.