RBI bars banks from levying penal interest, allows them to impose "reasonable" penal charges
Mumbai (PTI): Concerned over the practice of banks and Non-Banking Financial Companies (NBFCs) using penal interest as a revenue enhancement tool, the Reserve Bank on Friday came out with modified norms, under which lenders would be able to levy only "reasonable" penal charges in case of default in repayment of loans.
The banks and other lending institutions will not be allowed to levy penal interest with effect from January 1, 2024, the RBI said in its notification on 'Fair Lending Practice-Penal Charges in Loan Accounts'.
"Penalty, if charged, for non-compliance of material terms and conditions of loan contract by the borrower shall be treated as 'penal charges' and shall not be levied in the form of 'penal interest' that is added to the rate of interest charged on the advances," RBI said in a notification.
It further said the quantum of penal charges "shall be reasonable and commensurate with the noncompliance" of material terms and conditions of loan contract without being discriminatory within a particular loan/product category.
Also, there shall be no capitalisation of penal charges -- no further interest computed on such charges.
However, the instructions will not apply to credit cards, external commercial borrowings, trade credits and structured obligations which are covered under product-specific directions, the RBI said.
The RBI said that many entities regulated by it use penal rates of interest, over and above the applicable interest rates, in case of defaults/non-compliance by the borrower.
"The intent of levying penal interest/charges is essentially to inculcate a sense of credit discipline and such charges are not meant to be used as a revenue enhancement tool over and above the contracted rate of interest," the Central bank said.
However, supervisory reviews have indicated divergent practices amongst the entities regulated by entities with regard to levy of penal interest/charges leading to customer grievances and disputes, it said, while issuing the modified norms.
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Cong takes swipe at PM over India not being part of US-led 'Pax Silica' grouping
New Delh (PTI) The Congress on Saturday said it is perhaps not very surprising that India is not part of a US-led strategic initiative to build a secure silicon supply chain, given the "sharp downturn" in the Trump-Modi ties, and asserted that it would have been to "our advantage if we had been part of this group".
Congress general secretary in charge of communications Jairam Ramesh took a swipe at Prime Minister Narendra Modi, saying the news of India not being part of the group comes after the PM had enthusiastically posted on social media about a telephone call with his "once-upon-a-time good friend and a recipient of many hugs in Ahmedabad, Houston, and Washington DC".
In a lengthy post on X, Ramesh said, "According to some news reports, the US has excluded India from a nine-nation initiative it has launched to reduce Chinese control on high-tech supply chains. The agreement is called Pax Silica, clearly as a counter to Pax Sinica. The nations included (for the moment at least) are the US, Japan, the Republic of Korea, Singapore, the Netherlands, the United Kingdom, Israel, the United Arab Emirates, and Australia."
"Given the sharp downturn in the Trump-Modi ties since May 10th, 2025, it is perhaps not very surprising that India has not been included. Undoubtedly, it would have been to our advantage if we had been part of this group."
"This news comes a day after the PM had enthusiastically posted on his telephone call with his once-upon-a-time good friend and a recipient of many hugs in Ahmedabad, Houston, and Washington DC," the Congress leader asserted.
The new US-led strategic initiative, rooted in deep cooperation with trusted allies, has been launched to build a secure and innovation-driven silicon supply chain.
According to the US State Department, the initiative called 'Pax Silica' aims to reduce coercive dependencies, protect the materials and capabilities foundational to artificial intelligence (AI), and ensure aligned nations can develop and deploy transformative technologies at scale.
The initiative includes Japan, South Korea, Singapore, the Netherlands, the United Kingdom, Israel, the United Arab Emirates, and Australia. With the exception of India, all other QUAD countries -- Japan, Australia and the US -- are part of the new initiative.
New Delhi will host the India-AI Impact Summit 2026 on February 19-20, focusing on the principles of 'People, Planet, and Progress'. The summit, announced by Prime Minister Narendra Modi at the France AI Action Summit, will be the first-ever global AI summit hosted in the Global South.
Prime Minister Modi and US President Trump on Thursday discussed ways to sustain momentum in the bilateral economic partnership in a phone conversation amid signs of the two sides inching closer to firming up a much-awaited trade deal.
The phone call between the two leaders came on a day Indian and American negotiators concluded two-day talks on the proposed bilateral trade agreement that is expected to provide relief to India from the Trump administration's whopping 50 per cent tariffs on Indian goods.
In a social media post, Modi had described the conversation as "warm and engaging".
"We reviewed the progress in our bilateral relations and discussed regional and international developments. India and the US will continue to work together for global peace, stability and prosperity," Modi had said without making any reference to trade ties.
