RBI Registered NBFC

Penal Charges Policy

Introduction

“Lord Krishna Financial Services Ltd” (LKFSL/ the Company) is an RBI registered Non-Banking Financial Company identified as NBFC- Base Layer “NBFC-BL” in accordance to RBI Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023

The Reserve Bank of India “RBI” vide its circular “DoR.MCS.REC.28/01.01.001/2023-24 dated August 18, 2023 titled as “Fair Lending Practice - Penal Charges in Loan Accounts” has directed certain Regulated Entities “REs”, including all NBFCs, to frame a policy on penal charges. In compliance with the said requirement, the Board of Directors of the Company has formulated and adopted the Penal Charges Policy, which lays down the broad framework and specific terms and conditions regarding penal charges to be charged by the Company to its borrowers.

Scope

This policy applies to all borrowers and all loans disbursed by the Company.

Key Principles

In compliance with the referred circular and Directions issued by RBI, the key principles based on which the terms and conditions for penal charges have been framed are as follows:

  • The intent of levying penal interest/charges is essentially to inculcate a sense of credit discipline and such charges are not meant to be used as a revenue enhancement tool over and above the contracted rate of interest.
  • Penalty, if charged, for non-compliance of material terms and conditions of loan contract by the borrower shall be treated as ‘penal charges’ and shall not be levied in the form of ‘penal interest’.
  • There shall be no capitalisation of penal charges i.e., no further interest computed on such charges.
  • No additional component shall be added to the rate of interest.
  • The quantum of penal charges shall be reasonable and commensurate with the noncompliance of material terms and conditions of loan contract without being discriminatory within a particular loan / product category.

Structure of Penal Charges

Currently, penal charges are only to be levied if repayments are not made by the respective due date and penal charges are not envisaged for any other non-compliances related to other terms and conditions of the loan.

Further, the quantum and reason for penal charges shall be clearly disclosed to the customers in the loan agreement and most important terms & conditions / Key Fact Statement (KFS), in addition to being disclosed on the Company website. In addition to reminders sent to borrowers for non-compliance of material terms and conditions of loan, the Borrowers shall also be communicated about the applicable penal charges alongwith the instance of levy of penal charges and the reason thereof.

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