# RBI Warns Banks: No Interest on Loan Amounts Not Disbursed
The Reserve Bank of India (RBI) issued a warning to banks and lending institutions on August 18, 2023, stating that they cannot levy interest on loan amounts that have not been disbursed to the borrower. This move aims to protect borrowers from being charged interest on money they haven't received, especially in cases where there is a delay between loan sanction and disbursement, which is common with home loans and other types of loans.

Key Points of the RBI Warning:

Interest Only on Disbursed Amount: Banks and lenders are strictly prohibited from charging interest on any portion of the loan amount that has not been disbursed to the borrower. This applies from the date of loan sanction, not the date of loan agreement execution.
Fair Lending Practices: Charging interest on undisbursed amounts is a violation of fair lending practices, as it unfairly burdens borrowers with additional interest costs.
Protecting Borrower Rights: This RBI directive acts as a safeguard for borrowers, ensuring they are not financially penalized for delays in loan disbursal that are often outside their control.
Impact on Borrowers:

This regulation by the RBI is a significant positive development for borrowers, particularly those availing of home loans or other loans with a longer disbursement process. It prevents them from incurring unnecessary interest charges and reduces the overall financial burden associated with the loan.

Conclusion:

The RBI's warning serves as a reminder to banks and lending institutions to adhere to fair lending practices and prioritize borrower protection. This directive ensures transparency and prevents borrowers from being charged interest on money they haven't received, promoting a more equitable and ethical lending environment.
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