New Delhi: The Reserve Bank of India (RBI) proposed a significant change aimed at benefiting borrowers. The RBI suggested removing foreclosure charges and pre-payment penalties on all floating rate loans which includes those taken for business purposes. This would apply to loans availed by individuals, as well as micro and small enterprises (MSEs), making it easier for borrowers to repay their loans without additional financial burdens.
Certain regulated entities (REs) are not allowed to charge foreclosure fees or pre-payment penalties on floating rate term loans given to individual borrowers, with or without co-borrowers, unless it’s for business purposes.
An RBI draft circular stated, “REs, other than Tier 1 and Tier 2 Primary (Urban) Co-operative Banks and Base Layer NBFCs, shall not levy any charges/penalties in case of foreclosure/prepayment of floating rate loans granted to individuals and MSE borrowers, with or without co-obligant(s), for business purposes.”
However, in case of MSE borrowers, these instructions shall be applicable up to the aggregate sanctioned limit of Rs 7.50 crore per borrower, said the draft on ‘Responsible Lending Conduct – Levy of Foreclosure Charges/ Pre-paymentPenalties on Loans’.
Reserve Bank’s supervisory reviews have indicated divergent practices amongst REs with regard to levy of foreclosure charges/ pre-payment penalties in case of loans sanctioned to MSEs which lead to customer grievances and disputes.
Further, certain REs have been found to include restrictive clauses in loan contracts/agreements to deter borrowers from switching over to another lender, either for availing lower rates of interest or better terms of service. The draft circular further said REs should permit foreclosure/ pre-payment of loans without stipulating any minimum lock-in period.
They should not levy any charges/ penalties in cases where foreclosure/prepayment is effected at the instance of the RE. Lenders regulated by the RBI should also not levy any charges retrospectively at the time of foreclosure/ prepayment of loans, which were waived off by the REs/ not disclosed in advance to the borrowers, under any circumstances, the draft said. The central bank has invited comments from stakeholders by March 21, 2025. (With PTI Inputs)
Stay informed on all the , real-time updates, and follow all the important headlines in and on Zee News.