RBI unhappy over high prepayment penalty on home loans
By Joseph Samson
Feb 3, 2011
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Banking regulator, Reserve Bank of India is unhappy over banks charging high prepayment penalty on preclosure of home loans. The apex bank is looking for options to ask banks to lower the burden on borrowers if they are willing to prepay the loan.

Lenders like ICICI Bank charge prepayment penalty of 2% on outstanding loan balance coupled with surcharge and service tax. RBI data says that some banks charge as much as 5% as prepayment penalty. IndusInd Bank levies 4% prepayment penalty.

"RBI is clearly not happy with high prepayment charges. But should the regulator put a ban on prepayment charges is still a matter of further discussion," said a senior RBI official.

Although there is no specific guidelines set on banks regarding preclosure of loans, the largest lender of the country, State Bank of India does not levy any penalty on the borrower in case he precloses his home loan.

Penalty is however levied in case the borrowers prepays the loan using borrowed money from some other source.


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