Are banks making a business out of punishing loan defaulters?
The Reserve Bank of India (RBI) in August had instructing banks not to use penal interest rates as a revenue enhancement tool but rather to instill credit discipline. The RBI's guidelines are set to take effect on January 1, 2024. However, some banks seek a three-month deferral, arguing that penal interest rates promote better credit discipline. They also seek clarity on GST implications for penalties on stressed accounts.
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