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The Reserve Bank of India (RBI) has proposed a policy change aimed at providing significant relief to borrowers by recommending the removal of foreclosure charges on floating-rate loans taken by individuals for non-business purposes. The proposal was mentioned in a draft circular titled 'Responsible Lending Conduct – Levy of Foreclosure Charges/ Pre-payment Penalties on Loans’.
This proposal also extends to micro and small enterprises (MSEs) with business loans up to Rs 7.5 crore, allowing them the option to prepay or foreclose loans without facing penalties. Further, there should be no minimum lock-in period for the foreclosure of floating-rate loans.
The draft proposal is intended for all Scheduled Commercial Banks (except Payments Banks), Local Area Banks, Co-operative Banks, Non-Banking Financial Companies (NBFCs), Housing Finance Companies (HFCs), and All India Financial Institutions (AIFIs).
However, the proposal does not apply to Tier-I and Tier-II urban cooperative banks or base-layer non-banking financial companies (NBFCs). The RBI has invited feedback from stakeholders until March 21, before finalising these guidelines.
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