Stop charging prepayment penalty on home loans: RBI to Banks
In
a relief to borrowers, the RBI on Tuesday asked banks to immediately
stop charging penalty on pre-payment of home loans taken on floating
interest rates.
"It
has…been decided that banks will not be permitted to charge foreclosure
charges\pre-payment penalities on home loans on floating interest rate
basis, with immediate effect," the Reserve Bank said in a communication
to banks.
The
RBI noted that the Damodaran Committee had observed that foreclosure
charges levied by banks on prepayment of home loans were resented by
home loan borrowers.
This
is particularly so considering that banks were found to be hesitant in
passing on the benefits of lower interest rates to the existing
borrowers in a falling interest rate scenario, it added.
"As
such, foreclosure charges are seen as a restrictive practice deterring
the borrowers from switching over to cheaper available source," the RBI
said.
The
removal of the charges or penalty, the RBI said, will lead to reduction
in the discrimination between existing and new borrowers and
competition among banks will result in finer pricing of the floating
rate home loans.
"Though
many banks have in the recent past voluntarily abolished pre-payment
penalties on floating rate home loans, there is a need to ensure
uniformity across the banking system," it added.
Some banks were charging pre-payment penalty of 1-2 per cent of the outstanding loans.
With
an aim to ensure uniformity across the banking system in home loan
segment, the RBI in the annual monetary policy for 2012-13 had proposed
"not to permit" banks to levy the charges.
It had said that detailed guidelines in this regard would be issued separately.
Last
year, a consensus was reached at the Banking Ombudsmen Conference that
banks should not impose pre-payment charges on loans with a floating
rate of interest.
Earlier,
housing finance regulator National Housing Bank (NHB) had directed all
housing finance companies to desist from imposing a pre-payment penalty.
Source: DDI News
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