The Reserve Bank of India (RBI) dropped a regulatory bombshell on Friday as it announced a hefty Rs 2.5 crore penalty for L&T, attributing it to the companys apparent non-compliance with financial norms.The RBI expressed its concern over L&Ts failure to adhere to regulations governing non-banking financial institutions.One of the primary infractions highlighted by the central bank relates to L&Ts lack of transparency in providing detailed information to its borrowers. The company has been accused of failing to elucidate the rationale behind applying differing interest rates to various categories of borrowers, both in loan application forms and sanction letters.Adding to the gravity of the situation, L&T also stands accused of not disclosing the risk gradation to its borrowers, as well as implementing changes in penal interest rates without prior notification to borrowers, resulting in the imposition of higher rates than initially communicated.The RBI has issued a formal show-cause notice to L&T, prompting the company to justify its non-compliance with established rules and regulations. After careful consideration of the companys submissions and oral arguments, the RBI has upheld the legitimacy of its decision. The central bank firmly asserts that transgressions of these norms necessitate the monetary penalties imposed.It is important to note that the RBIs penalties solely address regulatory non-compliance and do not imply judgment on the validity of agreements between L&T and its customers.In accordance with RBI guidelines, non-banking financial companies (NBFCs) are mandated to communicate the sanctioned loan amount to borrowers via loan sanction letters. These letters must comprehensively outline the terms and conditions, alongside the annualised interest rate, a move intended to ensure borrowers are not in the dark regarding relevant rules and regulations. The failure to provide a copy of the loan agreement falls under the category of unfair practice, prompting stringent action against the company.Furthermore, the RBI strongly advises NBFCs to promptly inform borrowers of any changes in terms and conditions, interest rates, service charges, prepayment charges, and other related matters. Compliance with these guidelines is imperative to uphold transparency and fairness within the financial sector.
