The Reserve Bank of India (RBI) has directed the banks to update the borrowers in advance about all the charges and processing fee charged on a loan. This move comes from the practice of some banks charging heavily to their customers besides the interest rate levied on the loan.

On Tuesday RBI declared that the banks need to clarify about their charges and if they have not mentioned about a charge in their form then it should not be charged by the customer. Also the bank must inform 'all-in-cost' to the customer so that he can compare all the rates offered in the market. The notification by the RBI states that banks should invariably disclose all the charges and fee in the application forms.

Earlier in a circular dated March 2007, RBI had asked the banks to include all the information about charges levied on customers in their loan application forms. The circular further mentioned that this information should be provided to all types of borrowers irrespective of the loan amount.

The apex body had said that all the information relating to charges payable for processing, the amount of such fees refundable in the case of non acceptance of application, pre-payment options and any other matter which affects the interest of the borrower need to be clear in advance so that the borrower can take a learned decision.

In spite of the circular issued by RBI, banks were overcharging the customers without any prior notice. Now expressing concern over this practice RBI has again asked banks to clear all the charges to look-seekers well in advance.