RBI wants interest rate ceiling on personal loans

MUMBAI: With a view to prevent the bank from charging excessive interest rates on personal loans, the Reserve Bank of India on Monday asked all commercial banks to fix a ceiling on rates and processing charges to be levied on borrowers.

"An appropriate ceiling may be fixed on the interest, including processing and other charges that could be levied on such loans, which may be suitably publicised", the RBI said in a communication to chief executives of the banks.

The RBI has given banks three months to comply with its directives issued in pursuance of the annual credit policy to prevent banks from charging very high rates, which are neither sustainable nor in conformity with the normal banking practice.

The RBI further said the total cost to the borrower, including interest and all other charges levied on a loan, should be justifiable having regard to the total cost incurred by the bank in extending the loan.

The bank boards, the RBI said, should prescribe appropriate internal guidelines and procedures so that usurious interest, including processing and other charges, are not levied on loans and advances in respect of small value loans, particularly personal loans and other loans of similar nature.

The prior-approval process for sanctioning loans, the central bank said, should include factors like cash flow of prospective borrowers, risk premium as considered reasonable and justifiable, internal rating of borrower and presence or absence of security.