Don't levy pre-payment fee on floating loans: RBI

The Reserve Bank of india (RBI) in a release on Tuesday barred banks from imposing pre-payment charges on floating rate loans and also asked them to offer long-term fixed rate housing loans.

In an annual conference of banking ombudsman, the RBI laid down 10 action points to improve customer service of banks and suggested banks should address their asset liability mistmatches by participating in the interest rate swap market.

"Floating rate loans pass on the interest rate risk from banks which are much better placed to manage it to borrowers and, thus, banks only substitute interest rate risk with potential credit risk," the RBI said in the release.

Banks can, however, levy pre-payment charges on fixed rate loans.

The central bank directed banks to compensate customers for losses arising out of non-authorised transactions on ATMs.

In case of ATM or internet banking transactions related to monetary dispute, the onus of proving the customer's negligence or mistake should be on the bank, the RBI said.

Source: Business Standard