RBI Stops Banks from Charging Foreclosure Fees on Loans

The Reserve Bank of India (RBI) will prevent banks from charging foreclosure fees or prepayment penalties on floating rate loans. This rule applies to loans taken by individuals for non-business purposes. The RBI’s draft circular aims to promote responsible lending and protect borrowers from high charges.

Banks cannot charge fees when borrowers foreclose or prepay their floating rate loans. This includes loans taken by individuals and small and medium enterprises (SMEs) for business purposes, up to ₹7.5 crore per borrower. The guidelines apply no matter the source of funds for foreclosure or prepayment.

The RBI seeks feedback from stakeholders and the public on the draft circular until March 21, 2025. After reviewing the feedback, the final circular will be issued. The new rules aim to help borrowers by reducing the cost of repaying loans early and encouraging transparent lending practices.