May 7, 2014
All Scheduled Commercial Banks
Levy of foreclosure charges/pre-payment penalty on Floating Rate Term Loans
Please refer to our circular DBOD. No. Dir.BC.107/13.03.00/2011-12 dated June 5, 2012 on ‘Home Loans- Levy of Fore-closure Charges/ Pre-payment Penalty’.
2. A reference is invited to Part B of the First Bi-monthly Monetary Policy Statement 2014-15 announced on April 1, 2014proposing certain measures for consumer protection. It was 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.
(Prakash Chandra Sahoo)