Hi
RBI has directed all banks not to charge any prepayment penalty on home loans as per the following circular.
RBI/2011-12/604
RPCD CO. RRB. BC. No.85/03.05.033/2011-12
June 18, 2012
All Regional Rural Banks
Dear Sir
Home Loans-Levy of Fore-closure Charges / Pre-payment Penalty
Attention is invited to paragraphs 81 to 83 of the Monetary Policy Statement 2012-13
announced on April 17, 2012 with regard to home loans on floating interest rates. The
Committee on Customer Service in Banks (Chairman: M. Damodaran) had observed
that foreclosure charges levied by banks on prepayment of home loans are resented
upon by home loan borrowers across the board especially since banks were found to be
hesitant in passing on the benefits of lower interest rates to the existing borrowers in a
falling interest rate scenario. As such, foreclosure charges are seen as a restrictive
practice deterring the borrowers from switching over to cheaper available source.
2. The removal of foreclosure charges/prepayment penalty on home loans will lead to
reduction in the discrimination between existing and new borrowers and competition
among banks will result in finer pricing of the floating rate home loans. Though many
banks have in the recent past voluntarily abolished pre-payment penalties on floating
rate home loans, there is a need to ensure uniformity across the banking system. It has,
therefore, been decided that Regional Rural Banks will not be permitted to charge
foreclosure charges/pre-payment penalties on home loans on floating interest rate basis,
with immediate effect.
Yours faithfully
(C. D. Srinivasan)
Chief General Manager
Regards
Aftab
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