Missed an EMI by a few days, or had an auto-debit bounce? Your lender will usually add a charge. Since 2024, RBI's rules control how these charges work. Lenders can no longer add extra interest to your rate as a penalty. This guide explains RBI's penal charges rules, what lenders actually publish, and what to do if you are charged, as of October 2026.
What are penal charges on a loan?
A penal charge is what a lender levies when a borrower does not follow a material term of the loan. The most common case is paying an EMI (equated monthly instalment) late. Other cases can include breaking other loan conditions, as set out in your agreement.
RBI's rules replaced penal interest, meaning extra percentage points added to the loan's interest rate, with a separate penal charge. The difference matters, as the rules below show.
What did RBI change?
RBI's circular on Fair Lending Practice – Penal Charges in Loan Accounts (18 August 2023) set these rules:
- Charges, not interest. A penalty for non-compliance must be a "penal charge". It cannot be added to the interest rate as "penal interest".
- No interest on penal charges. Penal charges cannot be capitalised. So no further interest is charged on them. Normal interest compounding on the loan is not affected.
- No extra rate component. Lenders cannot add any additional component to the interest rate.
- Board policy. Each lender must have a board-approved policy on penal charges or similar charges, whatever it calls them.
- Reasonable. Charges must be reasonable and in proportion to the non-compliance. They must not discriminate within a loan or product category.
- Fair to individuals. For individuals borrowing for non-business purposes, penal charges cannot be higher than those for non-individual borrowers for similar non-compliance.
- Clear disclosure. The amount and the reason must be stated in the loan agreement and the Key Facts Statement (KFS), the standard summary of loan costs, and shown on the lender's website under "Interest rates and Service Charges".
- You must be told. Reminders about non-compliance must mention the penal charges. Any penal charge actually levied, and the reason for it, must be communicated to you.
When did these rules start?
The 2023 circular first set 1 January 2024. RBI then extended the timeline on 29 December 2023:
- New loans: the rules apply to fresh loans taken from 1 April 2024.
- Existing loans: lenders had to switch them on the next review or renewal date falling on or after 1 April 2024, and not later than 30 June 2024.
So, as of October 2026, these rules should apply to all covered loans, old and new. RBI has since consolidated many older circulars into new Master Directions for each type of lender (November 2025), so check the latest directions for the current text.
Which lenders and loans are covered?
- Lenders: commercial banks (except payments banks), primary (urban) co-operative banks, NBFCs including housing finance companies, and all-India financial institutions such as NABARD, NHB and SIDBI.
- Not covered: credit cards, external commercial borrowings, trade credits and structured obligations. These follow their own product rules.
How much do lenders charge for a late EMI?
RBI does not fix one amount. Each lender sets its own under its policy and must publish it. For example, ICICI Bank's live home loan penal and service charges page, checked in October 2026, lists 5% a year on the overdue EMI until repayment for term loans, plus applicable taxes, in force since 1 April 2024. Charges for a bounced cheque or failed auto-debit, where a lender levies them, are listed in that lender's schedule of charges.
Lenders can revise these. Your own KFS and loan agreement show what applies to you.
Worked example: one EMI paid 10 days late
Say your EMI is ₹30,000 and you pay it 10 days late. For illustration, assume the charge is counted for those 10 days on the overdue EMI only.
- At 5% a year (the ICICI Bank rate above): ₹30,000 × 5% × 10 ÷ 365 = about ₹41, plus taxes.
- At a higher rate, say 24% a year, for comparison: ₹30,000 × 24% × 10 ÷ 365 = about ₹197, plus GST.
- If the auto-debit also bounced, a separate bounce charge from the lender's schedule may apply on top, and your own bank may also charge for the failed debit.
Check how your lender counts the days, and the exact charges in your Key Facts Statement and the lender's current schedule; they may differ from this illustration.
Because penal charges cannot be capitalised, the ₹41 or ₹197 does not attract further interest. But your loan's normal interest on the unpaid EMI may still apply as per your agreement.
What is an EMI bounce?
If your EMI is paid by auto-debit, such as NACH (National Automated Clearing House) or a standing instruction, a bounce happens when the debit fails, for example because the account balance is too low on the debit date.
- The lender may levy a bounce charge as per its schedule.
- Your own bank may also charge for the failed debit. Check its schedule of charges.
- For loans sanctioned since 1 October 2024, RBI's KFS rules say fees or charges not in the KFS cannot be charged without your explicit consent.
Does a late EMI hurt your CIBIL score?
It can. Lenders report your repayment record to credit bureaus. Since 1 January 2025, RBI requires them to report credit information at least fortnightly. A late payment can show up in your credit report and may lower your score, which can affect the rate you are offered later. Paying quickly and keeping the account regular helps.
What should you do if you are charged?
- Pay the overdue EMI as soon as you can. Charges usually run until repayment.
- Check the charge against your KFS and loan agreement. The amount and reason must be disclosed there.
- Ask for a waiver if it was a one-off. Some lenders may agree, especially for a first delay. It is their decision.
- Complain if the charge was not disclosed or looks wrong. Write to the lender first. If it does not reply within 30 days, or you are unhappy with the reply, you can complain free under the RBI Integrated Ombudsman Scheme, 2026 at cms.rbi.org.in, if your lender is covered. Housing finance companies are outside this scheme; for them, the National Housing Bank takes complaints on its GRIDS portal.
- Prevent the next one. Keep a buffer in the debit account, or ask the lender whether it can move your EMI date closer to your salary date.
Do it in 10 minutes, free
If EMIs feel tight, use the LowerMyEMI EMI calculator to see how a lower rate or a longer tenure would change your monthly payment. Export it to Excel or PDF.
A lower rate can also make your EMI easier to carry. LowerMyEMI can write a ready letter asking your own bank for a rate cut, and one email per lender asking for their offer. You send them from your own email. We are not a lender and never promise a rate; lenders decide.