Prepayment penalty ban only for individual borrowers, says RBI

Reserve Bank clarified that its directive regarding ban on prepayment penalty on floating rate loans is applicable for individual borrowers

The Reserve Bank of India (RBI) on Wednesday clarified that its directive regarding a ban on prepayment penalty on floating rate loans was applicable only for individual borrowers, indicating  it wasn't for corporate clients.

“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,” the banking regulator said on Wednesday.

Also read: Banks wary of RBI norms on prepayment penalties

During the annual policy review on April 1, RBI had proposed bank should consider not levying foreclosure charges on floating rate loans, in the interest of their customers. However, it was not clarified by the banking regulator if the direction was only for retail customers. As a result, banks had approached RBI for further clarification.