ICICI Bank Ltd - Communication on Fair Lending Practice - Penal Charges in Loan Accounts

Dear Customer, The Reserve Bank of India (RBI), through Circular No. RBI/2023-24/53 dated Aug 18, 2023 on ‘Fair Lending Practice – Penal Charges in Loan Accounts’, has advised Banks that penalty for non-compliance with the Material Terms and Conditions of the Loan Contract, if charged, shall be treated as ‘Penal Charges’. The RBI has further advised that there should be no capitalisation of Penal Charges. However, the information mentioned above shall not affect the normal procedure for compounding of interest in the Loan Account. Penal Charges represent charges over and above the applicable interest rates/ fees, levied by the Borrower for a default/ breach in complying with the Material Terms of the Loan Contract/ Facility Agreement. The Penal Charges mentioned above will primarily function as a deterrent against the breach/ default of the Facility/ Loan and are intended to prevent the Borrowers from defaulting on their obligations as specified in the Loan Contract/ Facility Agreement. The provisions of the Loan Contract/ Facility Agreement relating to (i) the payment/ repayment obligations (including principal, interest, fees & charges) of the Borrower under the Facility; (ii) creation/ perfection/ furnishing of securities in terms of the Transaction Documents; (iii) any credit support (including and without limitation, any guarantee/ indemnity) provided/ agreed to be provided in relation to the Facility; (iv) compliance with financial covenants, security related covenants and information covenants; and (v) end-use of the Facility, shall be considered as ‘Material Terms’ of the Facility Agreement. On the breach of such Material Terms, the Bank reserves the right to levy and recover Penal Charges, at its sole discretion and at the rate specified in the attached ‘Annexure.’ For the purpose of the Loan/ Facility and the Transaction Documents, any reference to the Terms/ additional interest/ default interest/ penal interest is deleted and the following definitions and Terms and Conditions are incorporated into, and shall form a part of, the Facility Agreement. ‘Material Terms’ in relation to the Facility, mean the provisions relating to: (i) the payment/ repayment obligations (including principal, interest, fees & charges) of the Borrower under the Facility; (ii) creation/ perfection/ furnishing of securities in terms of the Transaction Documents; (iii) any credit support (including and without limitation, any guarantee/ indemnity) provided/ agreed to be provided in relation to the Facility (iv) compliance with financial covenants, security related covenants and information covenants and (v) end-use of the Facility. ‘Penal Charges’ represent additional charges payable by the Borrower to the Bank, in case of a breach of any of the Material Terms. The Borrower acknowledges that all interest due and unpaid on the due date shall be capitalised and added to the unpaid interest (including unpaid monthly instalments) on the due date and shall henceforth carry interest at the applicable interest rate on a compounding basis, payable on the aggregate amount, which will be due till the amount is paid/ repaid. Without prejudice to the Bank’s rights and remedies under contract and/ or law, if any amount due under the Facility continues to remain unpaid on the due date or the Borrower fails to create security and/ or commits breach of any of the Material Terms of the Facility, the Bank shall have the right to levy and recover Penal Charges, at its sole discretion, at the rate specified in the Annexure. On the levy of such Penal Charges, the Borrower shall pay the Penal Charges along with the applicable Goods and Services Tax (GST), other taxes (of any description whatsoever), charges and penalties, which may be payable as per the applicable laws, from time to time, in relation to the Facility. The Borrower acknowledges and agrees that the Penal Charges are reasonable and correspond to non-compliance with the Material Terms of the Facility Agreement. The Transaction Documents shall be read in conjunction with this letter.   Annexure I) For Working Capital A)Payment default   Sr. no. Nature of default (as applicable) Proposed reckoning of Penal Charges Proposed Penal Charges (per annum) 1. Irregular drawings due to drawing beyond the limit (i) Excess drawings – overdrawing power but within the sanctioned limit (ii) Excess drawings over the sanctioned limit (iii) Non-renewal of the limit 2% on excess drawings/ overdrawn amount 2% on excess drawings/ overdrawn amount 2% on the expired/ non-renewed limit* *Total outstanding as on that date   Note: Penal Charges will be levied from the date of excess drawings till the time the outstanding is brought within the drawing power/ sanctioned limit. In case of the limit expiry, Penal Charges will be charged from the next date of limit expiry. 2. Payment default (in case of Foreign Currency Loans where, as per the sanctioned terms of the Facility, on devolvement/ default, the Foreign Currency amount will be converted to an equivalent Rupee amount and additional interest, as mentioned, will be charged). Penal Charges will be levied from the due date till the time the default amount is paid. 2% on the defaulted amount.   Note: The mentioned clause for Penal Charges pertaining to irregular drawings due to drawing beyond the limit, is applicable for Overdraft Against Fixed Deposits (ODFDs) as well.   B) Bills/ cheques purchased/ discounted • Inland Bills   Sr. no. Nature of default (as applicable) Proposed reckoning of Penal Charges Proposed Penal Charges (per annum) 1. Demand Bill purchased (outstation) (i)Penal Charges will be levied from the 16 th day post purchase till the date of realisation (allowing 15 days for transit). (ii)For bills returned unpaid, Penal Charges will be levied from the date of purchase till the date of recovery. 2% on the overdue bill amount 2% on the overdue bill amount 2. Demand Bill purchased (local) Penal Charges will be levied from the 8 th  day post purchase till the date of realisation (allowing 7 days for presentation and transit). For bills returned unpaid, Penal Charges will be levied from the date of purchase till the date of recovery. 2% on the overdue bill amount 2% on the overdue bill amount 3. Usance Bills discounted For the period beyond the due date till recovery, Penal Charges will be levied at the time of recovery. For bills returned unpaid, Penal Charges will be levied from the date of discount till the date of recovery. 2% on the overdue bill amount 2% on the overdue bill amount 4. Inland Cheques purchased (outstation) Penal Charges will be charged from the 8 th day post purchase till the date of realisation (allowing 7 days for transit) For cheques returned unpaid, Penal Charges will be levied from the date of purchase till the date of recovery. 2% on the overdue bill amount 2% on the overdue bill amount 5. Inland Cheques purchased (local) For cheques returned unpaid, Penal Charges will be levied from the date of purchase till the date of recovery. 2% on the overdue bill amount 6. Factored invoices (whether under factoring or reverse factoring) Penal Charges will be levied from the date of the factored invoice becoming overdue, till the date of recovery. 2% on the overdue bill amount 7. Additional Rate of Interest on the Inland Bills Penal Charges will be levied from the due date till the date of realisation. 2% on the overdue bill amount   C) Other defaults   Sr. no. Nature of default (as applicable) Proposed reckoning of Penal Charges Proposed Penal Charges (per annum) 1. Non–compliance with the sanctioned terms pertaining to security creation. Security not created and/ or perfected within the sanctioned timeline. For the first 15 days of delay: Nil For delay post 15 days: 1% on the outstanding amount. 2. Non-compliance with the sanctioned terms pertaining to Stock Audit, Book Debt Statement and Stock Statement. Non-compliance with specific sanctioned terms within the sanctioned timeline/ delayed compliance. • Penal Charges will be stopped once the subsequent Monthly/ Quarterly Statement is received. • In the case of Stock Audit, Penal Charges will be applicable if the Stock Audit remains overdue beyond 90 days from the due date. •No Penal Charges will be applicable for intra-month delay. For Facility amount: 1) Less than/ equal to ₹50.0 million: ₹5,000 as per the type of compliance pending at the end of the month. 2) More than ₹50.0 million and up to ₹100.0 million: ₹10,000 as per the type of compliance pending at the end of the month. 3) More than ₹100.0 million: ₹25,000 as per the type of compliance pending at the end of the month. 3. Breach of financial covenants Applicable in cases where there has been a breach of the financial covenants specified by the approving authority (based on monitoring, as may be required by the approving authority). For the first 15 days of the breach from the due date, as per the sanctioned terms: Nil Breach continuing beyond 15 days: 1% on the average outstanding* amount *Average outstanding of the default period to be considered. 4. Non–compliance with the sanctioned terms - Other conditions Penal Charges are levied monthly in cases where the borrowers have defaulted in submitting the following indicative list of documents post disbursal or have not complied with the sanctioned terms. a) Capital infusion b) Closure of other bank account c) No Objection Certificate. For the first 15 days of the breach: Nil Breach continuing beyond 15 days: 1% on average outstanding* amount *Average outstanding of the default period to be considered.   II) Term Loan Facilities A)Payment default   Sr. no. Nature of default (as applicable) Proposed reckoning of Penal Charges Proposed Penal Charges (per annum) 1. Payment default for Term Loan cases Penal Charges will be levied from the date of default till the time the default amount is paid. 2% on the defaulted amount. 2. Payment default (in the case of Foreign Currency Loans where, as per the sanctioned terms of the Facility, upon devolvement/ default, the Foreign Currency amount will be converted to an equivalent Rupee amount and additional interest, as mentioned, will be charged). Penal Charges will be levied from the due date till the time the default amount is paid. 2% on the defaulted amount.   B)Other defaults   Sr. no. Nature of default (as applicable) Proposed reckoning of Penal Charges Proposed Penal Charges (per annum) 1. Non–compliance with the sanctioned terms pertaining to security creation. Security not created and/or perfected within the sanctioned timeline. For the first 15 days of delay: Nil Delay > 15 days: 1% on the outstanding amount. 2. Breach of financial covenants. Applicable in cases where there has been a breach of the financial covenants specified by the approving authority (based on monitoring and as may be required by the approving authority). For the first <15> days of the breach from the due date, as per the sanctioned terms: Nil Breach continuing beyond 15 days: 1% on average outstanding amount. *Average outstanding of the default period to be considered. 3. Non–compliance with the sanctioned terms – Other conditions. Penal Charges are levied monthly in cases where borrowers have defaulted in submitting the following indicative list of documents, post disbursal or have not complied with the sanctioned terms: a) Capital Infusion b) Closure of other bank account c) No Objection Certificate. For the first 15 days of the breach: Nil Breach continuing beyond 15 days: 1% on average outstanding amount *Average outstanding of the default period to be considered.   C) Supply Chain Finance (SCF) & Structured Trade Finance (STF)   Sr. no. Nature of default (as applicable) Proposed reckoning of Penal Charges Proposed Penal Charges (per annum) 1. Dealer Finance Penal Charges will be levied from the due date till the time the default amount is paid. Penal Charges will be levied from the date of excess drawings till the time the outstanding is brought within the drawing power/ sanctioned limit. 2% + applicable GST on the overdue amount 2% + applicable GST on excess drawings/ overdrawn amount 2. Vendor Finance/ Purchase Order (PO) Financing. Penal Charges will be levied from the due date till the time the default amount is paid. 2% + applicable GST on the overdue amount 3. Factoring (including Reverse Factoring)/ Payable Financing/ Purchase Bill Financing). Penal Charges will be levied from the due date till the time the default amount is paid. 2% + applicable GST on the overdue amount 4. Non–compliance with the sanctioned Terms and Conditions. Penal Charges are levied in the events of default, non-compliance with the Terms and Conditions for Stock Audit, Book Debt Statement and Stock Statement, pending security creation/ perfection and non-submission of the following indicative list of documents: a) Capital Infusion b) Closure of other bank account c) No Objection Certificate. For the first 15 days of the breach: Nil Breach continuing beyond 15 days: 1% + applicable GST on average outstanding amount. *Average outstanding of the default period to be considered.   Sincerely, Team ICICI Bank   Need assistance?     Access your account     T&Cs Disclaimer   This is a system generated e-mail. Please do not reply.