RBI's prepayment penalty ban poses bigger hit for NBFCs, say experts

NBFCs have around 5-25 per cent of their AUM under floating rate micro, small, and medium enterprises (MSMEs) loans which will be impacted as majority of them charge 2-5 per cent prepayment penalties

The fee income of banks and non-banking finance companies will come under pressure due to Reserve Bank of India’s (RBI’s) decision to bar prepayment penalty on fresh loans for micro and small enterprises, effective 1 January, 2026. However, the impact on NBFCs will be more as compared to commercial banks, experts said.

 

NBFCs have around 5-25 per cent of their asset under management (AUM) under floating rate micro, small, and medium enterprises (MSMEs) loans which will be impacted as majority of them charge 2-5 per cent prepayment penalties.

 

At the same time, fee income of banks is less than 1