RBI asks banks not to levy penalty on loan pre-payment

The Reserve Bank of India (RBI) Thursday directed all the commercial banks not to levy any penalty on pre-payment of loans under floating rate scheme that cover housing, auto as well as personal loans.

"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 RBI said in a notification.

This will give huge relief to auto and personal loan borrowers as most banks charge for pre-payment of such loans.

Some banks charge pre-payment penalty of up to two percent of the outstanding amount. In case of housing loans, however, most banks are not charging for pre-payment.