RBI tells banks not to levy prepayment charges on floating rate loans

In its first bi-monthly monetary policy review on 1 April, RBI had indicated that in the interest of their consumers, banks should consider allowing their borrowers the possibility of prepaying floating rate term loans without any penalty. Photo: Pradeep Gaur/MintMumbai: The Reserve Bank of India (RBI) on Wednesday said banks cannot levy charges on individual customers if they choose to close their floating rate loans. Some banks charge a fee if an individual borrower chooses to close his or her loan. This fee varies from bank to bank, and is mostly in the range of 1-3%In its first bi-monthly monetary policy review on 1 April, RBI had indicated that in the interest of their consumers, banks should consider allowing their borrowers the possibility of prepaying floating rate term loans without any penalty.“Accordingly, it is advised that banks will not be permitted to charge foreclosure charges/pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect,” RBI said in a notification on Wednesday.

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