RBI prohibits pre payment charges on transfer of floating rate loans
RBI announces ban on prepayment charges for individual floating rate loans from next financial year to boost borrower flexibility and transparency.
The Reserve Bank of India has announced that all banks and other regulated entities will be prohibited from charging any prepayment penalties on floating rate loans borrowed by individuals for non business purposes.
This new rule, called Prepayment Charges on Loans Directions , 2025 is going to be effective from next financial year.
This norm will boost transparency and resilience in borrower capacity. It will be applied to all commercial banks, except payments banks, co-operative banks, NBFCs, and All India Financial Institutions.
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This exemption is applied regardless of whether the loan is fully or partially repaid, the source of funds, or the presence of a co-obligant. It will also include dual, and special rate loans if they are on a floating rate at the time of repayment and No minimum lock-in period is required in this.
The loans which are not covered under this rule, then lenders would mention any prepayment charges in the sanction letter, loan agreement, and other key facts statement.
This action is against the restrictive clauses to protect customers which prevents them from accessing better loan arrangements.
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