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by Rakesh Waghela

18.7 Charge ledger mechanics

Charges are separate from interest and principal. Per RBI Aug 2023 penal-charges circular, penal charges in particular cannot be capitalised. This page covers every charge type the LMS supports.

Charge ledger structure

Section titled “Charge ledger structure”

A separate ledger per loan, tracking charges due and paid:

charges_outstanding {
    processing: ₹0
    servicing: ₹0
    late: ₹0
    bounce: ₹0
    penal: ₹0
    foreclosure: ₹0
    renewal: ₹0
    other: ₹0
    gst_total: ₹0   -- GST on the above
}

These never roll up into principal. Borrower’s repayment allocates per 18.8 waterfall which addresses charges first.

Per charge type

Section titled “Per charge type”

A. Processing fee

Section titled “A. Processing fee”

When: At sanction / disbursement.

Computation: loan_amount × processing_fee_pct (e.g., 1.5% × ₹35 lakh = ₹52,500).

GST: 18% on the fee = ₹9,450. Total ₹61,950.

Treatment:

  • Deducted from disbursement amount (borrower receives net) OR
  • Charged separately at disbursement.

GL postings (deducted-from-disbursement variant):

Dr Loans and Advances    ₹35,00,000
   Cr Disbursement Bank   ₹34,38,050  (35L - 61,950)
   Cr Processing Fee Income  ₹52,500
   Cr GST Output Liability   ₹9,450

B. Servicing fee (revolving lines)

Section titled “B. Servicing fee (revolving lines)”

When: Per annum, charged monthly on outstanding limit.

Computation: outstanding × servicing_fee_pa / 12 per month.

Worked example: ₹40 lakh limit at 0.25% p.a. = ₹100/month.

GST: 18%.

Posted: Month-end batch.

C. Renewal fee (for line renewals)

Section titled “C. Renewal fee (for line renewals)”

When: At annual line renewal.

Computation: per agreement; typically 0.5 – 1% of renewed limit.

Treatment: similar to processing fee.

D. Late payment charge

Section titled “D. Late payment charge”

When: On EMI / line repayment late beyond grace period.

Computation (board-approved, illustrative):

late_charge = max(min(2% × overdue_amount, 5000), 500)

(Range ₹500 – ₹5,000; 2% of overdue.)

GST: 18%.

Posted: Day of delay being detected.

Worked example:

EMI of ₹2.45 lakh overdue.

2% × 245000 = ₹4,900 (within 500-5000 range)
Late charge: ₹4,900
GST: ₹882
Total: ₹5,782

E. Bounce charge

Section titled “E. Bounce charge”

When: NACH / cheque bounce.

Computation: Flat ₹500 – ₹1,500 per bounce (board policy).

GST: 18%.

Posted: On bounce file processing day.

F. Penal charge (per Aug 2023 circular)

Section titled “F. Penal charge (per Aug 2023 circular)”

When: Per specific breach as defined in loan agreement (limit-exceed, covenant breach, etc.).

Computation: Per board policy.

Critical: Cannot be capitalised into principal; lives in charges_outstanding.

Worked example (limit-exceed):

Borrower’s ₹40 lakh line is drawn to ₹43 lakh (over-limit by ₹3 lakh) for 7 days. Board policy: 2% per annum on overdrawn amount × days.

penal = 300000 × 0.02 × 7 / 365 = ₹115

Charged per-day to charges_outstanding.penal.

G. Foreclosure charge

Section titled “G. Foreclosure charge”

When: Borrower elects to foreclose.

Critical: Banned on floating-rate MSME term loans per RBI 2014 circular.

For fixed-rate or non-MSME:

Computation: Per disclosed policy in KFS; typically 2 – 4% of foreclosed principal.

GST: 18%.

H. Other charges

Section titled “H. Other charges”

Examples per agreement:

  • Cheque return charge (similar to bounce).
  • Document re-issuance fee.
  • Statement re-issuance fee (typically waived if borrower uses portal).
  • NOC processing.
  • Insurance pass-through (where bundled).

Waterfall position

Section titled “Waterfall position”

Per 18.8:

1. Penal charges (paid first)
2. Other fees (late, bounce, etc.)
3. Servicing fees
4. Interest
5. Principal

Order ensures penal / fee charges are recovered before regular interest / principal — protects lender from chronic underpayment.

GL postings — generic

Section titled “GL postings — generic”

For any chargeable event:

Dr Charges Receivable - {type}    [amount + GST]
   Cr {type} Charge Income         [amount]
   Cr GST Output Liability         [GST amount]

On collection (when borrower pays via waterfall):

Dr Bank / Borrower account credited
   Cr Charges Receivable - {type}

GST liability monthly: settled via GST 3B filing.

GST handling

Section titled “GST handling”
  • CGST + SGST for intra-state (borrower’s state same as lender’s place of supply).
  • IGST for inter-state.
  • 18% total GST.
  • HSN code for financial services: 997199 (or specific sub-codes per service).

Invoice generation: per chargeable event, GST invoice generated and stored. Invoice number per state per series.

Charge dispute handling

Section titled “Charge dispute handling”

When borrower disputes a charge:

  • Borrower raises grievance.
  • Compliance / ops investigate.
  • If error: reverse the charge.
  • If valid: explain to borrower.
INSERT INTO loan_event (loan_id, event_type, event_payload_json) VALUES (
    ?, 'charge_reversal',
    '{"original_charge_id": ?, "reason": "...", "approved_by": ?}'
);

What the LMS must enforce

Section titled “What the LMS must enforce”
  • Charges in separate ledger, never compounded into principal.
  • Penal charges separate from interest (Aug 2023 compliance).
  • GST computed correctly per state.
  • Foreclosure charge blocked for floating-rate MSME.
  • Charge events audited.
  • Waterfall allocation per policy.

Compliance touchpoints

Section titled “Compliance touchpoints”
  • RBI Aug 2023 penal charges — separation.
  • RBI 2014 foreclosure — floating-rate MSME ban.
  • GST law — invoicing + filing.
  • Fair Practices Code — disclosure in KFS.
Section titled “Related”