Reserve Bank of India on May 7, 2014 directed all commercial banks not to levy any penalty on individual borrowers for pre-paying floating loans.
“…it is advised that banks will not be permitted to charge foreclosure charges or pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect,” RBI said in a notification.
Floating loan products include housing, corporate, vehicle and personal loans.
RBI In the first bi-monthly monetary policy statement for 2014-15 released last month said banks should consider allowing their borrowers the facility of prepaying floating rate term loans without any penalty in the interest of their customers. Some banks charge upto 2% for fore-closure.