The Hindu Editorial Analysis : 19th August 2023

The Hindu Editorial Analysis

The Importance of Reading The Hindu Editorial: Reading The Hindu newspaper has several benefits, including improving reading skills, facilitating comprehension, staying informed of current events, enhancing essay writing, and more. For individuals aiming for a career in banking, reading editorials is crucial for vocabulary building. In this article, we will examine today’s editorials, provide practice questions, and highlight important vocabulary words.

Levying panel interest.

• The RBI on Friday said banks and finance companies cannot charge interest on penal charges for not complying with the terms and conditions of a loan to ensure fair lending practices and protect the interest of consumers. Penalty, if charged, should be treated as “penal charges and not be levied as “penal interest” on the existing rate charged on loan, RBI said in a notification.
• The new guidelines, which will come into effect from January 1, will ensure that lenders don’t change the contracted interest rate for borrowers if they fall behind in loan repayment.
• “The intent of levying penal interest or charges is primarily to instill a sense of credit discipline. Such charges are not intended to serve as a revenue enhancement tool beyond the contracted interest rate.
• However, supervisory reviews have revealed divergent practices among regulated entities regarding the imposition of penal interest or charges, lending to customer grievances and disputes,” the circular said.
• An implication of the change in terminology is that lenders cannot capitalize on penal charges.
• Lenders should not introduce any additional component to the rate of interest and ensure compliance to these guidelines in “both letter and spirit,” the bank added.
• The revised norms have a section that defines penal charges in loan accounts Lenders must disclose penal charges for late repayment in bold within the loan agreement, while finance companies must convey these charges in a language the borrower understands.
• It also sought the lenders to disclose the quantum and reason for penal charges. Under the norms, lenders must establish a board-approved policy on penal charges. ensuring transparency reaso nable charges, and clear disclosure to borrowers.
• The instructions are not applicable to credit cards, external commercial borrowings, trade credits and structured obligations, RBI added. Earlier, the Finance Industry Development Council had asked RBI to not classify penal Interest as ‘charges due to tax implications.
• “Adjusting the credit risk premium can be considered when there is a significant drop in risk profile. Penal interest can be levied from the date of default, which discourages unnecessary delays by borrowers.

Practice Questions:

• It also sought the lenders to disclose the quantum and reason for penal charges.Explain
• Why should the Lenders not introduce any additional component to the rate of interest?

Important Vocabs:

• Rigorous– done very carefully
• incentivise– motivate or encourage to do something
• contentious– likely to cause argument
• reckoning-the act of calculating something
• biennial– happening once every two years

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