Banking · Loan Regulation and Interest Rates
In the context of monthly interest rests in loan accounts, how should a bank handle the application of interest for a Cash Credit account to ensure compliance with RBI guidelines?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The penal interest for late payment must be added to the principal and compounded at the same rate as the base interest.
- 2Banks are permitted to debit interest quarterly only for large corporate loans while maintaining monthly rests for retail loans.
- 3Interest must be debited at monthly rests and it should not be compounded in the case of agricultural advances.✓
- 4Interest should be compounded daily and debited to the account at the end of the year to maintain borrower liquidity.
Correct answer
Interest must be debited at monthly rests and it should not be compounded in the case of agricultural advances.
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