Lok Sabha Question No. 3975 (UNSTARRED), answered on 2022-03-28
Subject: Service Charges on Loans
Ministry: FINANCE
Asked by: Queen Oja, Shankar Lalwani, Bharatiben Dhirubhai Shyal

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA

## UNSTARRED QUESTION No. 3975

ANSWERED ON MONDAY, MARCH 28, 2022/CHAITRA 7, 1944 (SAKA)

## Service Charges on Loans

3975. SHRIMATI QUEEN OJA: SHRI SHANKAR LALWANI: DR. BHARATIBEN DHIRUBHAI SHIYAL: Will the Minister of FINANCE be pleased to state:

- (a) whether the Government is aware that the private banks and Non-Banking Financial Companies are charging service charges before the filing of any loan, from which they are getting crores of rupees every year without doing anything;
- (b) if so, whether the Government is contemplating to issue such guidelines in which service charge is taken only after the loan is sanctioned, so that the consumer does not suffer if the loan is not sanctioned;
- (c) if so, the details thereof; and
- (d) if not, the reasons thereof?

## Answer

The Minister of State in the Ministry of Finance (DR BHAGWAT KARAD)

- (a) to (d) The extant provisions / guidelines for charging of Service Fees by Banks, including Private Banks and Non-Banking Financial Companies (NBFCs) are as follows:
- (i) As per Reserve Bank of India (RBI)'s Master Circular on 'Customer Service in Banks' dated July 1, 2015, banks are permitted to fix service charges on various services rendered by them, as per their Board approved policy, while ensuring that the charges are reasonable and not out of line with  the  average  cost  of  providing  these  services.  Banks  have  been  advised  to  identify  basic services and the principles to be adopted/ followed by them for ensuing reasonableness in fixing such charges. They are also advised to take steps to ensure that customers are made aware of the service chares upfront and changes in the service charges are implemented only with the prior notice to the customers.
- (ii) Further, as per RBI's Master Circular on 'Loans and Advances - Statutory and other restrictions' dated July 1, 2015, with a view to bringing in fairness and transparency, banks are advised to keep the loan application forms comprehensive and transparently disclose all information about fees / charges payable for processing the loan application, the amount of fees refundable if loan amount is not sanctioned / disbursed, pre-payment options and charges if any, penalty for delayed repayments if any, conversion charges for switching loan from fixed to floating rates or vice-versa, existence  of  any  interest  reset  clause  and  any  other  matter  which  affects  the  interest  of  the borrowers.
- (iii) As per  extant  RBI's  Master  Directions  2016,  Non-Banking  Financial  Companies  (NBFCs)  are advised to serve notice to the borrower in the vernacular language or a language as understood by  the  borrower  of  any  change  in  the  terms  and  conditions  including  disbursement  schedule, Interest Rates, Service Charges, Prepayment Charges etc. Further, Boards of NBFCs shall lay out appropriate internal principles and procedures in determining interest rates and processing and other charges by keeping in view the Fair Practices Code about transparency in respect of terms and conditions of the loans.

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