Penal charges (दंड शुल्क)
Penal charges are one-time penalties for breaking loan terms, most commonly missing an EMI, and RBI rules effective 2024 say they must be reasonable, disclosed upfront, and levied as a flat charge rather than as extra "penal interest" added to your rate. They cannot be capitalised, meaning no interest can be charged on the penalty itself.
Worked example
You miss a ₹5,000 EMI (part of a ₹30,000 total repayment schedule) and the KFS lists a penal charge of ₹250 plus GST. The lender may collect ₹295 as a one-time penalty, but cannot raise your interest rate or compound the ₹250.