Capitalisation of interest by bank

guidelines for capitalisation of interest by banks

it is expected henceforth from the banks, bound by the directives of the Reserve Bank of India, to make an averment in the plaint that interest/compound interest has been charged at such rates, and capitalised at such periodical rests, as are permitted by, and do not run counter to, the directives of the Reserve Bank of India. A statement of account shall be filed in Court showing details and giving particulars of debit entries, and if debit entry relates to interest then setting out also the rate of, and the period for which, the interest has been charged, On the Court being prima facie satisfied, if a dispute is raised in that regard, of the permissibility of debits, the onus would be on the borrower to show why the amount of debit balance appearing at the foot of the account and claimed as principal sum cannot be so accepted and adjudged. This practice would narrow down the scope of controversy in suits filed by banking institutions and enable an expeditious disposal of the suits, the issues wherein are by and large capable of being determined by documentary evidence. RBI directives have not only statutory flavour, any contravention thereof or any default in compliance therewith is punishable under sub-section (4) of Section 46 of Banking Regulation Act, 1949.

Supreme Court of India
Central Bank Of India vs Ravindra And Ors. on 18 October, 2001
Equivalent citations: AIR 2001 SC 3095, 2002 (50) BLJR 207
Author: R Lahoti
Bench: A Anand, K Thomas, R Lahoti, N S Hegde, S Variava
R.C. Lahoti, J.
1. What is the meaning to be assigned to the phrases "the principal sum adjudged" and "such principal sum" as occurring in Section 34 of the Code of Civil Procedure, 1908 [as amended by the Code of Civil Procedure (Amendment) Act (66 of 1956) w.e.f. 1.1.1957], a question of frequent recurrence and having for reaching implications in suits for recovery of money, specially those filed by banking institutions against their borrowers, has been referred by a three-Judges Bench of this court to the Constitution Bench.
2. It will be useful to reproduce the order of reference dated 7^th May, 1996 so as to highlight the nature and scope of controversy arising for decision before the Constitution Bench:

Even though the above Order of the Apex Court is binding for all the banks bd FIs in India, most of the banks have in-built software in computer, which capitalise and take monthly compounded interest for Penal Interest also.  Unfortunately, most of the courts are ignoring this illegal gains made by the banks.




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