Mumbai: The Reserve Bank of India (RBI) on Wednesday directed that, henceforth, banks will not be permitted to charge foreclosure charges or pre-payment penalties on all floating rate term loans sanctioned to individual borrowers.
This directive will come into effect immediately. The charges by some banks were as high as two per cent of the outstanding loans.
This move will benefit lakhs of borrowers who have availed floating loan products, including housing, corporate, vehicle and personal loans.
Two years ago, the RBI had barred banks from levying foreclosure charges or pre-payment penalties on home loans on floating interest rate basis. The present decision would extend the same benefit to other categories such as corporate, vehicle and personal loans.
The RBI drew the attention of the banks to its April 1, first bi-monthly monetary policy statement 2014-15, where “it was indicated that in the interest of their consumers, banks should consider allowing borrowers the possibility of prepaying floating rate term loans without any penalty.”
