Indcap Advisors

image

Penal Interests on borrowers in defaults waived off

Many banks and Non-Banking Financial Companies (NBFCs) have been charging penal interest, over and above the applicable interest rates as a revenue generative toolfrom defaulting borrowers. This practice concerned the RBI and it has issued notification on Fair Lending Practice-Penal Charges in Loan Accountsunder which, with effect from January 01, 2024,all lenders (banks, NBFCs and other lending institutions regulated by the RBI) would be able to levy only reasonable penal charges in case of default in repayment of loans.

The new directive states that penalty if charged for non-compliance of material terms and conditions of loan contract by the borrower would 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. However, the instructions will not apply to credit cards, external commercial borrowings, trade credits and structured obligations which are covered under product-specific directions.

This act ofthe RBI is primarily to inculcate a sense of credit discipline and transparency among the lenders’ community.

Interest Cost, as we know,is the prime mover and revenue generator for lending institutions and the debt markets. Corporates procure loans/debt from regulated lenders in order to leverage their companies with the right mix of owned and borrowed capital. Interest costs have a close nexus with the timing and quantum of raising funds and we at Indcap Advisors Pvt. Ltd., have over the last 25 years, been providing customized solutions in the areas of Corporate Finance and Management Advisory.

Sources:

  1. Image – Google.com
  2. Content –      https://www.rediff.com/business/report/rbi-changes-norms-for-bank-penalties-on-loan-default/20230818.htm
https://www.thehindu.com/business/rbi-issues-fresh-guidelines-asking-banks-nbfcs-not-to-levy-penal-interest-on-borrowers-in-case-of-default/article67208498.ece

Leave a Reply

Your email address will not be published. Required fields are marked *

images

Varun Khanna-Assistant Vice President

A qualified Chartered Accountant with over 5 years of experience working with consultancy firms.  He has worked with EY, Deloitte and Transaction Square.  He has been actively involved in advising clients on restructuring and assisting them to undertake mergers and acquisitions. 

images

Shraddha Khanna -Assistant Vice President

A Company Secretary and a Commerce graduate from the University of Calcutta. She has 6+ years of experience in the fields of M&A, PE, Merchant Banking, Transaction Advisory, Corporate Insolvency Resolution and Valuation. She has been advising and working on clients across sectors like – real estate, hospitality, retail food chains, healthcare, metals and mining. Her core area of interest lies in working for and advising start-ups. She is an enthusiastic and responsible professional and has a dynamic personality.

images

Ravi Shankar Seth-Assistant Vice President

An MBA in finance having experience of more than 15 years in Debt Syndication and Corporate Debt Restructuring. Expertise on preparation of Detailed Financial Modelling, Information Memorandum, Techno Economic Viability Study, Detailed Project Report, Stress Funding, Valuation, Corporate Advisory, Retail Loans, Rating, Due Diligence and Deal Negotiation.

image

Vikash Kedia- Senior Vice President

Experienced finance and deals professional with over 15 years of experience in private equity, M&A, IPO, debt, treasury and structured finance, strategic partnerships and collaborations, valuation and financial modelling, competitive bidding, corporate strategy and planning, investment banking, business restructuring and stressed asset resolution under IBC. He has worked with leading MNC and domestic investment banks in advisory roles and in corporate finance / treasury roles in leading institutions. He is a Chartered Accountant, a Chartered Financial Analyst and has done his Post Graduate Diploma in Business Management from Management Development Institute, Gurgaon. 

images

Sashikant Kothari- Senior Vice President

A Chartered Accountant and a Chartered Financial Analyst with Post Graduate Diploma in Business Management from Management Development Institute, Gurgaon, having about 15 years of experience in private equity, M&A, IPO, debt, treasury and structured finance, strategic partnerships and collaborations, valuation and financial modelling, competitive bidding, corporate strategy and planning, investment banking, business restructuring and stressed asset resolution under IBC. He has worked with leading MNC and domestic investment banks in advisory roles and in corporate finance / treasury roles in leading institutions.