New Delhi [India], In a recent directive issued by the Reserve Bank of India (RBI), all commercial banks, primary (urban) co-operative banks, state co-operative banks, district central co-operative banks, non-banking microfinance institutions and housing finance companies including financia Companies (NBFCs) have been directed to review their practices with respect to interest charges. According to RBI, the directive, effective immediately, is aimed at addressing concerns over certain unfair practices observed during RBI onsite examinations. Regulated Entities (RE) for the period ending March 31, 2023. The guidelines on Fair Practice Code (FPC) issued to various REs since 2000 emphasize fairness and transparency in charging interest by lenders, while providing them freedom in their loan pricing policy. However, the RBI during its investigation identified instances of lenders resorting to non-standard practice in charging interest, leading to the issuance of this direction.Lenders were found charging interest from the date of loan sanction or agreement instead of actual disbursement of funds to the customer. In cases where the check was handed over to the customer several days later, interest was charged from the date of the cheque. In cases where loans were disbursed or repaid during the month, some RES were found charging interest for the entire month instead of only. During the period when the loan was outstanding, some REs were seen collecting one or more installments in advance instead of calculating the full loan amount to recover interest. These practices are considered inconsistent with the principles of fairness and transparency in customer transactions, raising serious concerns for the RBI.Supervisory teams of RBI have advised REs to refund excess interest and other charges to customers wherever such practices have been identified. Additionally, REs have been advised to review the loan disbursement with a view to streamline the process and enhance efficiency. It is encouraged to shift to online account transfer instead of issuing cheques. As per these observations, all REs have been directed to review their practice with respect to the method of loan disbursement, application of interest and other charges. They have been directed to take corrective action, including system-level changes, to address the highlighted issues.