No penalty on prepayment or foreclosure of floating rate loans: RBI releases draft norms
The Reserve Bank of India (RBI) released draft norms on 21 February, outlining a new no penalty on prepayment or foreclosure of floating rate loans.The draft norms stated that lenders shall permit foreclosure/ pre-payment of all floating rate loans sanctioned for purposes other than business to individuals, with or without co-obligant(s).
The draft norms also said that 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 purpose. However, in the case of MSE borrowers, these instructions shall be applicable up to the aggregate sanctioned limit of Rs 7.50 crore per borrower.The draft norms also stated that lenders shall permit foreclosure/ pre-payment of loans without stipulating any minimum lock-in period.
Lenders shall not levy any charges/ penalties in cases where foreclosure/ prepayment is effected at the instance of the lenders. The applicability or otherwise of foreclosure charges/ pre-payment penalties shall be appropriately mentioned in the Key Fact Statement 3 for applicable loans and advances.
According to the draft norms, lenders shall not levy any charges retrospectively at the time of foreclosure/ prepayment of loans, which were waived off by the lenders not disclosed in advance to the borrowers, under any circumstance
