MFIN said in a statement that from January 1, members of the self-regulatory organisation will ensure that a microfinance institution customer’s exposure to a single MFI is limited to three MFIs as against four at present. Also, the total exposure of a borrower, including MFIs and retail loans considered unsecured, is limited to Rs 2 lakh.

Alok Mishra, the chief executive and director of the institute, hoped that the new measures would make the sector ‘more robust’. The Reserve Bank of India has expressed concern over several activities of MFIs in the last few months. This includes activities such as excessively high interest rates, giving multiple loans to a single borrower and even not depositing loan payments in the right accounts despite payment.

On October 21, RBI banned four entities including Navi Finserv, DMI Finance, Arohan Financial Services and Ashirvad Micro Finance from approving and disbursing new loans due to improper activities. At the same time, many lenders are showing an increase in their NPAs (non-performing assets) in the MFI segment.

According to MFIN guidelines, these financial institutions have also tightened the rules for lenders to lend to customers who have come under the non-performing asset category. The guidelines state that no loan will be given to any defaulting customer who has not paid dues of more than Rs 3,000 for more than 60 days.

Currently, this time limit is 90 days. Self-regulatory organizations have also asked lenders not to charge any fees other than processing fees and life insurance on loans. MFIN’s statement said that the directors of regulated entities will closely monitor and review the interest rates to ensure that efficiency benefits are passed on to customers. According to the statement, “These measures are aimed at facilitating responsible lending, prioritizing customer safety and promoting the growth of the sector.”

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The post Big news for loan borrowers, rules changed after RBI’s strictness, will be implemented from January 1 first appeared on Rightsofemployees.com.

Till now, in case of loan default, the penalty fee is added to the principal amount by the banks, later banks also charge interest on that amount. But after the order given by the RBI to the banks, now the customers will get relief.

Will not be added to the outstanding principal

According to the new rule of RBI, now the bank will have to recover the penalty fee separately and it will not be added to the outstanding principal. This step of the Reserve Bank (RBI) will help in curbing the additional interest levied on the customers in case of loan default. RBI in its draft circular on ‘Unfair Lending Activities – Penal Fee in Loan Accounts’ said that the quantum of penalty fee should be commensurate with the extent of default/non-compliance of important terms and conditions of the loan agreement.

Under the extant RBI guidelines, lenders have the freedom to implement a board approved policy for recovery of penalty fee. The central bank has issued a draft to streamline these activities. It has been said in the draft that the purpose of imposing penalty is to create a sense of credit discipline among the borrowers and to provide proper compensation to the lender. It further stated that the penalty fee is not a means of earning in addition to the contracted interest rate.

The post Loan borrowers: Big news! RBI brought a new rule for loan borrowers, you will have to pay less money in case of default! first appeared on Rightsofemployees.com.