Penal charges

Since the Reserve Bank of India's circular of 18 August 2023, penal charges are a charge and not an addition to the rate of interest, and they cannot be capitalised. The rule sits in that circular, which the note names. The source given below is the Reserve Bank of India (Commercial Banks, Resolution of Stressed Assets) Directions, 2025, which the same note cites.

In the illustration in our note of 21 September 2026, penal charges at two per cent a year on an outstanding of INR 25 crore add about INR 4.17 lakh a month to the dues, alongside contract interest, and are not capitalised. They accrue for as long as the enforcement sequence runs.