Penal Charges

Penal Charges Policy

March, 2026

Confidentiality

The material in this document is confidential and proprietary to BSG FINANCE and no part of this material should be reproduced, published in any form by any means, electronic or mechanical including photocopy or any information storage or retrieval system nor should the material be disclosed to third parties without the express written authorization of BSG FINANCE.

  • Overview

Reserve Bank of India (RBI) has issued guidelines through its circular “Fair Lending Practice – Penal Charges in Loan Accounts” dated August 18, 2023, to all financial institutions regarding to ensure reasonableness and transparency in disclosure of penal interest. RBI issued these guidelines after observation of use of penal rate of interest, over and above the applicable interest rates, in case of defaults / non-compliance by the borrower with the terms on which credit facilities were sanctioned.

This policy establishes a framework for B S Goel Finance Company Private Limited (BSG FINANCE) to adopt practices for charging penal charges on loan. The stated framework come into effect from April 01, 2026, and BSG FINANCE shall take necessary steps to ensure compliance with this framework instructions.

  • Penal Charges in Loan Accounts

Parameter

Criteria (For Housing loans)

Mandates for Implementation

  1. Penalty, if charged, for non-compliance of material terms and conditions of loans contract by the borrower will be treated as ‘penal charges’ and will not be levied in the form of ‘penal interest’ which is added to the rate of interest charged in the advances. There will be no capitalisation of penal charges however, this will not affect the normal procedure for compounding of interest in the loan account.
  2. BSG FINANCE must not introduce any additional component to the rate of interest and ensure compliance to these guidelines in both letter and spirit.
  3. The quantum of penal charges should be reasonable and commensurate with the non-compliance of material terms and conditions of loan contract without being discriminatory within a particular loan / product category.
  4. The penal charges in case of loans sanctioned to ‘individual borrowers, for purposes other than business’, must not be higher than the penal charges applicable to non-individual borrowers for similar non-compliance of material terms and conditions.
  5. The quantum and reason for penal charges should be clearly disclosed by BSG FINANCE to the customers in the loan agreement and most important terms & conditions / Key Fact Statement (KFS) as applicable, in addition to being displayed on BSG FINANCE website under Interest rates and Service Charges.
  6. Whenever reminders for non-compliance of material terms and conditions of loan are sent to borrowers, the applicable penal charges must be communicated. Further, any instance of levy of penal charges and the reason therefor should also be communicated.
  7. BSG FINANCE ensure implementation of these instructions in respect of all the fresh loans availed/ renewed from the effective date. In the case of existing loans, the switchover to new penal charges regime will be ensured on next review or renewal date or six months from the effective date of this circular, whichever is earlier.
  8. Penal charges should be in accordance with company cost of collection and recovery.
  

Applicability

Applicable for all products

Date of implementation

The framework is applicable from April 01, 2026, for all fresh loans availed / renewed from the effective date.

In the case of existing loans, the switchover to new penal charges regime shall be ensured on next review or renewal date or six months from the effective date of this circular,

whichever is earlier

RBI Link for stated policy


Reserve Bank of India – Notifications (rbi.org.in)

Indicative list of penal and other such charges

  1. Cheque/ ECS/ NACH/ SI bounce charges
  2. Late Payment Charge
  3. Legal Charges if any
  4. Charges for non-availability of repayment instrument
  5. EMI Due Collection Charges
  6. Such other charges may be introduced from time to time by the Management of the Company, namely,

Executive Directors of the Company.

Annexure

List of amendments to Master Direction w.r.t Penal Charges

Annexure

List of Amendments

1) BSG FINANCE will transparently disclose to the borrower 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, penal charges for delayed repayment, 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 borrower. In other words, BSG FINANCE must disclose ‘all in cost’ inclusive of all charges involved in processing/ sanctioning of loan application in a transparent manner. It should also be ensured that such charges/ fees are non-discriminatory.

2) BSG FINANCE must convey in writing to the borrower in the vernacular language or a language as understood by the borrower by means of sanction letter or otherwise, the amount of loan sanctioned along with all terms and conditions including annualized rate of interest, method of application, EMI Structure, prepayment charges, penal charges (if any) and keep the written acceptance of these terms and conditions by the borrower on its record.

3) BSG FINANCE must give 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, penal charges (if any), service charges, prepayment charges, other applicable fee/ charges etc. BSG FINANCE should also ensure that changes in interest rates and charges are effected only prospectively. A suitable condition in this regard should be incorporated in the loan agreement.

4) The Board of each BSG FINANCE should adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk premium and determine the rate of interest to be charged for loans and advances. The rate of interest and the approach for gradation of risk and rationale for charging different rate of interest to different categories of borrowers will be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter. The Board of the BSG FINANCE should also have clearly laid down policy for penal charges (if any).

5) The rate of interest must be annualised rate so that the borrower is aware of the exact rates that would be charged to the account.

6) BSG FINANCE must lay out appropriate internal principles and procedures in determining interest rates and processing and other charges (including penal charges, if any). In this regard the directions in the Fair Practices Code about transparency in respect of terms and conditions of the loans are to be kept in view. BSG FINANCE are also advised to put in place an internal mechanism to monitor the process and the operations so as to ensure adequate transparency in communications with the borrowers.

7) BSG FINANCE will provide information on interest rates, common fees and charges (including penal charges, if any) through putting up notices in their branches; through telephone or helplines; on the company’s website; through designated staff/ help desk; or providing service guide/ tariff schedule.

8) Display of various key aspect such as service charges, interest rates, penal charges (if any), services offered, product information, time norms for various transactions and grievance redressal mechanism, etc. is required to promote transparency in the operations of BSG FINANCE. BSG FINANCE shall follow the instructions on “Notice Board”, “Booklets/ Brochures”, “Website”, “Other Modes of Display” and on “Other Issues”