Penalty for advance repayment of loans: Rajya Sabha Q&A

GOVERNMENT OF INDIA

MINISTRY OF  FINANCE

RAJYA SABHA

ANSWERED ON  25.11.2014

(a) whether the Ministry is aware of the fact that Private Sector Banks in India are charging penalty for advance repayment of personal loans;

(b) if so, the details of guidelines, RBI has given to Private Sector Banks regarding foreclosure of personal loans; and

(c) what steps the Ministry would take to regulate the private sector banks on such issues?

(a) : Reserve Bank of India (RBI) has informed that many Private Sector Banks such as Axis Bank, HDFC, ICICI, Kotak Mahindra, Yes Bank, IndusInd Bank etc. are charging penalty on pre-payment of Personal Loans extended on fixed rate of interest at the rate depending on the price agreements agreed with the customers which are not in the nature of term loan.

(b) & (c): As per RBI circular dated May 7, 2014 on ‘Levy of Foreclosure Charges / Pre-payment Penalty on Floating Rate Term Loans’, all Scheduled Commercial banks (excluding RRBs) have been advised not to charge foreclosure charges/ pre-payment penalty on all floating rate term loans sanctioned to individual borrowers with immediate effect from the date of said circular.

Source: RajyaSabha.nic.in