Q. The Reserve Bank of India (RBI) has issued new guidelines for lenders on penal interest charges. With reference to these guidelines consider the following statements:
1.Penal interest charges are additional fees levied on borrowers who fail to comply with the terms and conditions of their loan agreement.
2.Under the new guidelines, banks and non-banking and housing finance companies will be allowed to introduce additional components to the interest rate.
3.Penal charges are not meant to be used as a revenue-enhancement tool over and above the contracted interest rate. 
Which of the statements given above are correct?

[A] 1 and 2 only

[B] 2 and 3 only

[C] 1 and 3 only

[D] 1, 2 and 3

Answer: C
Notes:

Explanation –

Statement 1 and 3 are correct. Penal interest charges are additional fees levied on borrowers who fail to comply with the terms and conditions of their loan agreement. Penal charges are not meant to be used as a revenue-enhancement tool over and above the contracted interest rate.

Statement 2 is incorrect. Under the new guidelines, banks and NBFCs & HFCs will not be allowed to introduce any additional components to the interest rate, and penal charges for default or non-compliance will be treated separately from the rate of interest charged on the loan.

Source: The Times of India