NBFC's not to charge foreclosure charges/pre-payment penalty on Floating Rate Loans

Reserve Bank of India vide its Circular no. RBI/2014-15/121 DNBS(PD).CC.No.399/03.10.42/2014-15 dated July 14 , 2014 has advised  that  NBFCs shall not charge foreclosure charges/ pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect. Its a major sigh of relief for the borrower who has to suffer just because of the malpractices of undue charging by NBFCs of prepayment penalties and foreclosure charges.Complete circular is reproduced here under for the benefit of the readers.

RBI/2014-15/121
DNBS(PD).CC.No.399/03.10.42/2014-15

July 14, 2014

All Non Banking Financial Companies /
Residuary Non Banking Companies

Dear Sirs,

Levy of foreclosure charges/pre-payment penalty on Floating Rate Loans

Please refer to paragraph (iii) of Guidelines on Fair Practices Code for NBFCs issued vide Circular DNBS(PD) CC No. 80/03.10.042/2005-06 dated September 28, 2006 and paragraph 2(A) (iii) of Master Circular DNBS(PD).CC.No.388 /03.10.042/2014-15 dated July 1, 2014.

2. As a measure of customer protection and also in order to bring in uniformity with regard to prepayment of various loans by borrowers of banks and NBFCs, it is advised that NBFCs shall not charge foreclosure charges/ pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect.

Yours faithfully,

(K.K. Vohra)
Principal Chief General Manager