RBI Circular No. RBI/2023-24/53 dated Aug 18, 2023 on ‘Fair Lending Practice – Penal Charges in Loan Accounts’

(a)RBI vide its Circular No. RBI/2023-24/53 dated Aug 18, 2023 on ‘Fair Lending Practice – Penal Charges in Loan Accounts’, has advised banks that any penalty, if charged for non-compliance with material terms and conditions of the loan contract, will be treated as penal charges and not be levied in the form of penal interest that is added to the rate of interest charged on the loans/advances. RBI has further advised that there will be no capitalisation of penal charges i.e. no further interest will be computed on such penal charges. However, the aforesaid will not affect the normal procedure for compounding of interest in the loan account.

(b) In light of the foregoing, the provisions of the loan contract/facility agreement relating to (i) the payment/repayment obligation (including principal, interest, fees, charges) of the Borrower under the Facility; (ii) creation/perfection/furnishing of securities in terms of Transaction Documents; (iii) any credit support (including, without limitation, any guarantee or indemnity) provided/agreed to be provided in relation to the Facility (iv) compliance with financial covenants, security related covenants and information covenants; and (vi) end use of the Facility, will be considered as ‘Material Terms’ of the loan contract/facility agreement and upon breach of such ‘Material Terms’, the Bank reserves the right to levy and recover Penal Charges at its sole discretion, at the rate specified in the ‘Schedule’ mentioned below. Penal Charges represents charges over and above the normal interest rates/fees levied for default/breach by the borrower/customer in complying with the ‘Material Terms’ on which the credit facilities were sanctioned. Upon levy of such Penal Charges, the Borrower will pay the said Penal Charges along with applicable Goods and Services Tax (GST) if any, other taxes (of any description whatsoever), charges and penalties which may be payable, pursuant to applicable laws from time to time, in relation to the loan contract/facility agreement.

Further, there will be no capitalisation of penal charges in your loan account i.e. no further interest computed on such penal charges. However, the aforesaid will not affect the normal procedure for the compounding of interest in the loan account.

(c) The aforesaid penal charges are being imposed primarily to act as a deterrent against any breach/default of the facility/loan and is intended to inculcate a sense of financial discipline and discourage borrowers from defaulting on their obligations, as specified in the loan contract/facility agreement.

(d) The above guidelines would apply to all credit facilities i.e. fund-based and non-fund based facilities, save and except Credit Cards, External Commercial Borrowings, Trade Credits and Structured Obligations.

(e)The above-mentioned guideliness are effective from from Apr 01, 2024 and applicable for all the fresh loan facilities which are executed from Apr 01, 2024. In case of an existing Loan facility, a switchover to the new penal charges regime will be ensured on the next review/renewal date or before Jun 30, 2024, whichever is earlier. These guidelines will operate along with other ICICI Bank policies on pricing and customer disclosures.

The revised penal charges are mentioned below in Schedule I. Further, effective May 01, 2024, we have revised other service charges which are mentioned in Schedule II below.

Schedule I

Schedule II

*Goods & Services Tax (GST) and other taxes, levies etc. applicable as per the prevailing rate will be charged over and above these charges.

For any queries or concerns regarding this change, please contact Customer Care at 1800 1080.

Click here to know the list of Service Charges.