Port Blair, June 06: Reserve Bank of India has asked banks to immediately stop charging penalty on pre-payment of home loans taken on floating interest rates.
In a notification issued from Mumbai on Tuesday, RBI has said that removal of foreclosure charges or prepayment penalty on home loans will lead to reduction in the discrimination between existing and new borrowers.
The action will also result in finer pricing of the floating rate home loans. Recently, the Committee on Customer Service in Banks chaired by M. Damodaran had observed that foreclosure charges levied by banks on prepayment of home loans were resented by home loan borrowers.
As such, foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source.
The committee had also said that the banks were found to be hesitant in passing on the benefits of lower interest rates to the existing borrowers in a falling interest rate scenario. This is viewed as a major step taken by the RBI to protect the interests of banking consumers. (PIB)
