CA Rushabh Shah

CA Rushabh ShahThe RBI, vide its circular RBI/2013-14/ 582 DBOD. Dir. BC. No. 110 /13.03.00/2013-14 dated the 7th of May 2014 has advised all the banks that from immediate effect, there shall be no prepayment penalties / foreclosure charges to individual borrowers for all the floating rate term loans. However, it can be clearly inferred from the notification that business / corporate borrowers do not fall under this purview and hence, there is no benefit available to them.

This comes as a relief to individual borrowers as it not allows them avail the benefits of low rate of interest in the market from bankers. This notification comes a few days after the RBI released the First Bi-Monthly Monetary Policy Statement for 2014 – 15 on April 1, 2014 wherein they specifically mentioned that consumer protection is an integral part of financial inclusion. With this notification, the RBI has indicated that banks cannot take any undue benefit of customers difficulty or inattention. RBI has thus initiated steps towards framing comprehensive customer protection regulations based on domestic experience and global best practices.

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Relevant RBI Notification is as follows :-

RBI/2013-14/582
DBOD. Dir.BC.No.110/13.03.00/2013-14

May 7, 2014

All Scheduled Commercial Banks
(Excluding RRBs)

Dear Sir/Madam

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, 2014 proposing 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.

Yours faithfully,

(Prakash Chandra Sahoo)
Chief General Manager

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53 responses to “No Prepayment / Foreclosure Charges on Floating Rate Loans of individual borrowers”

  1. boradramnik says:

    Dear Sir

    I had taken home loan & top up loan on this home loan in the year 2013. The loan is issued solely in my name & all EMI’s are deducted from only my presonal a/c, but for income cretria bank had considered ME, MY WIFE & MY HUF AS CO-BORROWER. ( my huf is not any company )

    Now I want to close my loan & I am making Pre Payment. My bank is levying on me PRE- CLOUSER Charges saying that as HUF is Co-borrower the pre payment charges apply.

    Sir please help & guide me that whether the bank is saying correct or wrong as the rbi notification RBI/2013-14/ 582 DBOD. Dir.BC.No. 110 /13.03.00/2013-14 dated May 7, 2014 clearly says that there should be no pre-payment or pre -clouser charges for home loan on Individual

    So If the loan is sanctioned in my name & all emi’s are deducted from my a/c & co borrower is my huf can they charge pre-payment or pre- clouser charges.

    Request to help in this matter & guide immediately

  2. RAMNIK BORAD says:

    Dear Sir

    I had taken home loan & top up loan on this home loan in the year 2013. The loan is issued solely in my name & all EMI’s are deducted from only my presonal a/c, but for income cretria bank had considered ME, MY WIFE & MY HUF AS CO-BORROWER. ( my huf is not any company )

    Now I want to close my loan & I am making Pre Payment. My bank is levying on me PRE- CLOUSER Charges saying that as HUF is Co-borrower the pre payment charges apply.

    Sir please help & guide me that whether the bank is saying correct or wrong as the rbi notification RBI/2013-14/ 582 DBOD. Dir.BC.No. 110 /13.03.00/2013-14 dated May 7, 2014 clearly says that there should be no pre-payment or pre -clouser charges for home loan on Individual

    So If the loan is sanctioned in my name & all emi’s are deducted from my a/c & co borrower is my huf can they charge pre-payment or pre- clouser charges.

    Request to help in this matter & guide immediately

  3. Sachin says:

    Does a proprietorship firm classify as a individual borrower in relation to foreclosure charges

  4. Moxesh says:

    Hello
    Please let me know if a NBFC can charge foreclosure/prepayment charges on loan against property given to an Individual borrower and the co borrower is a Huf karta (which is not a firm.)
    The loan was purely given to an individual but Huf was added as a co borrower only for loan eligibility. All the Emis are paid by the Individual alone from his bank account.
    Regards
    Moxesh 9979729595

  5. Prakash. Takhtani says:

    Hello
    Please let me know if a NBFC can charge foreclosure/prepayment charges on loan against property given to an Individual borrower and the co borrower is a Huf karta (which is not a firm.)
    The loan was purely given to an individual but Huf was added as a co borrower only for loan eligibility. All the Emis are paid by the Individual alone from his bank account.
    Regards
    Prakash
    9867334052

  6. Rajesh says:

    Dear sir I have taken 1140000 amount in 09-2014 but I am closing on 09-2016 but magma has given 1144000 and they charges fore closing charges is it APPLICABLE.

    Please suggest the same

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