The RBI said that there is no justification for banks to charge pre-payment penalty on any loan which usually have floating rate of interest

The Reserve Bank of India (RBI) is expected to direct banks to cancel penalty on pre-payment of all retail and small corporate loans. The central bank is also likely order banks do away with fines for failure to maintain minimum balance, according to a media report.

The RBI said that there is no justification for banks to charge pre-payment penalty on any loan which usually have floating rate of interest. Floating rates charge interest rates based on the prevailing markets, however with a lag of a few days or weeks, the report added.

Last week, the RBI in its first bi-monthly monetary policy statement said instead of penal charges for non-maintenance of a minimum balance in ordinary savings bank accounts, banks should limit the services available on such accounts, to those available to basic accounts.

However, the decision on penalty removal is yet to be finalised. RBI further said banks should restore the services when the balances improve to the minimum required level.
The central bank also said that in the interest of their consumers, banks should consider allowing their borrowers the possibility of pre-paying floating rate term loans without any penalty.

The banking regulator said that banks should also limit the liability of customers in electronic banking transactions in cases where banks are not able to prove customer negligence.


Source: India Infoline