Beginning September 1, all financial institutions in the country will have to follow a standard method of interest calculation. The revised regulation comes from the Royal Monetary Authority (RMA) after several clients complained of different ways of interest calculation and variation.
According to the new regulation all banks will not be allowed to compound- which means they cannot add the interest to the principal and earn interest from the new amount.
Capitalisation of interest and late fee shall not be allowed as well. The RMA, however, says that the banks may impose a maximum of 5% per annum on the defaulted amount instead of compounding.
Such problem, the RMA says, are also because the fault of the consumers who often rush through to get their loan sanctioned.
However, RMA, as a regulatory body after sending their supervisors to the banks verified the problem and then called for a meeting of the banking officials.
While some agreed that there were incidences of compounding, some said it is hard to avoid in some cases such as over draft loans.
The Chief Executive officers (CEO) of the Bank of Bhutan and the Bhutan National Bank, however, welcomed the new regulation and said this would bring about uniformity in the financial institutions.
The Druk Punjab National Bank has a different say. They are not happy with the new policy. The CEO, N.K. Arora said defaulters should be penalised and incentives be given to the regular tax payers.
The CEO, however said, they will have to comply with the regulators whether they like it or not. Tashi Bank was not available for comment.
The RMA will be carrying out ad hoc inspections to see that the commercial banks are in compliance with the new regulation.
In case of non-compliance they will be liable to pay the highest rate of lending on the amount capitalised or compounded to the clients.
