The Reserve Bank of India on Wednesday said that banks and Non-banking financial companies (NBFCs) cannot levy foreclosure charges for prepayment penalties on floating rate term loans sanctioned to Micro and Small Enterprises (MSEs). Through this, RBI aims at safeguarding consumer interest by ensuring transparency, extending the existing prohibition that already applies to individual borrowers.
While announcing the review of the monetary policy, RBI Governor Shaktikanta Das said that, “The Reserve Bank has taken several measures over the years to safeguard consumer’s interest. As part of these measures, Banks and NBFCs are not permitted to levy foreclosure charges/prepayment penalties on any floating rate term loan sanctioned to individual borrowers for purposes, other than business”.
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Das also said a draft circular will be issued for public consultation.
Earlier, banks were prohibited from charging foreclosure fees on floating rate term loans sanctioned to individuals, including those with co-obligants for non-business purposes. This rule, introduced in 2019 covered loans such as home loans and personal loans.
With new regulations, MSEs will now benefit from the same protections as individual borrowers, ensuring they are not burdened with foreclosure fees when repaying their loans early. The rules also apply to loans involving co-obligants, providing further safeguards.
