RBI draft norms on foreclosure charges to hit lenders' profits: Analysts

The Reserve Bank of India’s (RBI’s) draft circular barring prepayment penalty on retail and small business loans would result in a drop in fee income for lenders and dent profitability, in addition to customers switching to other lenders, analysts said. 

 

The hit on non-banking financial companies (NBFCs) would be larger compared to banks, they said.

 

On Friday, RBI issued a draft circular mandating lenders to permit foreclosure or prepayment of all floating rate loans sanctioned to individuals for purposes other than business, without levying any penalties or charges.

 

Moreover, banks and NBFCs cannot charge for foreclosure for floating rate loans