‘Do not charge penalty on pre-payment of floating loans’: RBI to Banks
The RBI gave relief to borrowers as it directed banks not to levy any penalty on individual borrowers for pre-payment of floating loans. The central bank has barred banks from imposing foreclosure charges or pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect.
Floating loan products include housing, corporate, vehicle and personal loans. Some banks are charging pre-payment penalty of up to 2% of the outstanding loans.
In 2012, RBI had disallowed banks from charging foreclosure charges or pre-payment penalties on home loans on floating interest rate basis. It is assumed that elimination of foreclosure charges or prepayment penalty on home loans will bring down the discrimination between existing and new borrowers and the competition among banks will result in better pricing of home loans with the floating rate.