RBI Takes Charge: No More Sneaky Loan Penal Interests Starting 2024

Good Morning ☕

Well, it seems the RBI is determined to turn the financial penalty game into a "fair play" affair. In the world of loans, it's like they're saying, "If you're going to be penalized, at least let it be transparent and reasonable. No sneaky penal interest hiding in the bushes!" Let's hope borrowers feel the same level of discipline when it comes to paying back those loans. After all, it's like the RBI is turning into the financial referee, blowing the whistle on excessive charges.

RBI Introduces New Guidelines on Penal Charges for Loan Accounts Effective 2024

The Reserve Bank of India (RBI) introduced new guidelines to enhance transparency in penal charges and interest rates for loan accounts, effective from January 1, 2024. While lending institutions previously had autonomy in setting penal rates, the RBI noted that many institutions imposed excessive penal rates beyond standard interest rates for defaults. The main purpose of these charges is to foster credit discipline, not to increase revenue beyond the agreed interest rates.

Here are some key points:

1. RBI's goal is to promote credit discipline, ensuring penal charges aren't used as a revenue enhancement tool beyond the agreed interest rate.
2. Penalties for non-adherence to loan terms will be treated as 'penal charges', not as additional 'penal interest' to the existing interest rate.
3. Regulated Entities (REs) can't introduce new interest rate components and must have a Board-approved policy on penal charges.
4. Penal charges should be reasonable, transparent, and non-discriminatory within loan categories.
5. For personal loans, penal charges shouldn't exceed those for non-individual borrowers for similar violations.
6. REs should clearly disclose penal charges to customers in loan agreements, website listings, and reminders.
7. The guidelines will apply to all RBI-regulated banking entities but exclude Credit Cards, External Commercial Borrowings, Trade Credits, and Structured Obligations.

All fresh or renewed loans from the effective date must follow these instructions. Existing loans must transition to the new regime by the next review or six months from the guideline's effective date, whichever comes first.

Important News of the Day

1. RBI rejects Cred bid to boost stake in Newtap Fin

The Reserve Bank of India (RBI) has declined Cred's application to increase its stake in Newtap Finance from 23.6% to a majority share. The reasons remain unclear, with suggestions of "corporate governance and management issues." Cred, initially a credit card payment firm, has transitioned to lending, with Newtap Finance recently reporting significant revenue growth. Due to RBI's digital lending guidelines, many fintechs, including Cred, are seeking to expand their presence in the NBFC space.

2. Q2 inflation to average well above 6%, says RBI

The RBI's August bulletin suggests that inflation could average above 6% in the second quarter due to ongoing supply shocks, notably in vegetable prices. While this perspective doesn't represent the central bank’s official stance, it follows data from 14 August which recorded a 15-month high inflation rate of 7.44% in July. The RBI has adjusted its Q2FY24 inflation projection to 6.2%, leading to an annual forecast revision for FY24 to 5.4%. The bulletin article emphasized the need for reforms in perishable supply chains to mitigate such inflationary trends and acknowledged that current monetary and fiscal measures have tempered inflation's impact.

3. Zero-shadow day in Bengaluru today

Bengaluru is set to experience Zero Shadow Day on August 18, an event where the sun, at its peak elevation, causes objects to cast no shadows. This phenomenon happens twice a year for locations between the Tropic of Cancer and Tropic of Capricorn. On these days, the sun aligns directly overhead at noon, resulting in no shadows on the ground. Hyderabad also observed this event earlier on August 3 and May 9.

What is Zero Shadow Day?

Zero Shadow Day occurs twice a year in locations between +23.5 and -23.5 degrees latitude, when the sun's peak elevation causes no shadows. Declination is the angular distance of a celestial body from the celestial equator, while latitude measures distance from the Equator using imaginary lines called parallels.

4. Bengaluru: Union Minister inaugurates country's first 3D-printed post office building

India's first 3D-printed post office building was inaugurated by Union Minister Ashwini Vaishnaw in Bengaluru on August 18. The building was constructed by L&T on a 1,100 sq ft site using 3D printing technology, which reduces the time of construction and is cost-effective. The building is attractive and has been designed to withstand natural calamities. The use of 3D printing technology is expected to revolutionize the construction industry in India.

5. Russia war fallout may hurt Indian diamond exports

The G7 is contemplating sanctions on India's diamond imports linked to Russian-sourced rough diamonds, which could affect India's significant diamond industry employing over 4 million. While talks with major Indian diamond entities are ongoing, the potential ban might focus on diamonds of one carat and above. This comes amid already declining Indian diamond exports to key markets like the US and China. In FY23, India's diamond trade involved $17.3 billion in imports and around $22 billion in exports.

6. India's 'output gap' now positive, stagflation risk at only 3%: RBI bulletin

Despite a significant rise in prices, the risk of stagflation in India remains low, according to the Reserve Bank's August bulletin. The study indicates only a 3% probability of stagflation, attributing this to stable financial conditions and the INR/USD exchange rate, as well as consistent domestic fuel prices. July saw annual retail inflation soar to 7.44%, mainly due to an increase in vegetable and cereal prices, exceeding the RBI's 2%-6% target range. Although August data shows continued price hikes in certain food items, there's been some reduction in tomato prices.

7. Retail leasing in Delhi-NCR up by 65% in H1 2023: CBRE

Retail leasing in Delhi-NCR surged by 65% in the first half of 2023, according to a report by CBRE South Asia. Major brands like Apple, Pret A Manger, Tim Hortons, and Balenciaga expanded their presence in the region. Nationwide, retail leasing rose by 24% annually in the same period.

8. President Murmu launches INS ‘Vindhyagiri’ in Kolkata

President Droupadi Murmu launched INS Vindhyagiri, an advanced stealth frigate for the Indian Navy, on August 17, 2023, at the Garden Reach Shipbuilders and Engineers Ltd. facility in Kolkata. The frigate is the sixth ship under Project 17 Alpha of the Indian Navy and is named after the Vindhyagiri mountain range.

9. Delhi reveals heat action plan: No schools in afternoon

Delhi has released its first-ever heat action plan, which includes measures to mitigate the effects of extreme heat. The plan proposes to revise Delhi School timings, suspend non-essential water usage, provide uninterrupted power supply to health facilities, and survey vulnerable populations. Schools will be closed in the afternoon, and non-essential water use will be curbed. The plan also includes painting rooftops white to reduce heat absorption. The measures are aimed at reducing the impact of extreme heat on vulnerable populations, such as the elderly and those with pre-existing health conditions.

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• Yasin Malik's wife Mishaal Hussain Malik enters Pakistan's interim govt.

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