BoI scraps pre-payment fee on fixed & floating home loans

Bank of India on Saturday became the second major bank, after the SBI, to abolish the pre-payment charges on both fixed and floating rate home loans, with immediate effect.

“We have decided to implement the Damodaran committee recommendation on customer service. Accordingly, we have decided to give total liberty to our home loan customers, both on floating rates as well on fixed rates to switch if they choose to do so irrespective of the source of funds, including takeover by another lender,” a BoI official told PTI.

Before this, Bank of India, which has a home loan book of worth Rs 15,000 crore, used to charge 2.5 per cent penalty on the outstanding amount in case of pre-payment.

The country’s largest lender, State Bank of India (SBI), and the largest private sector bank ICICI Bank, had on November 25 abolished pre-payment penalty on home loans.

While the SBI had done away with pre-payment charges for loans on fixed and floating interest rates irrespective of source of funds, ICICI Bank will continue to charge 2 percent on the outstanding amount of fixed-interest loans.

Earlier this week, another state-run lender Central Bank of India too had waived pre-payment charges on its fixed rate home loans.

The Reserve Bank on October 25 had indicated that it was planning to scrap prepayment charges altogether saying in such a product the customer is taking the complete risks.

However, banks are allowed to charge appropriate pre-payment penalties in the case of fixed rate loans.

Within a few days, the National Housing Bank had asked mortgage players to abolish the charges through a circular.

But RBI is yet to issue a circular on this. Normally an RBI directive/advice becomes mandatory only after a circular.