Hi Akhil,
I'm not sure if reversal should be a viable option for you since the Posting Period for the Principal flow would probably be closed by now.
One of the acceptable practices is to customize a Penal Interest/Bank Charge Flow in Other flows and post it.
So ultimately when the payment is being cleared, the 3 flows that'll have to be cleared are Original Interest, Penal Interest/Bank Charge and Bank Payment Entry.
Best,
Rohit