RBI/2013-14/612
RPCD.CO.RCBD.RRB.BC.No.102/07.51.013/2013-14

May 27, 2014

The Chairman
All State and Central Co-operative Banks (StCBs and CCBs)
All Regional Rural Banks (RRBs)

Dear Sir/Madam

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

Please refer to our circulars RPCD.CO.RCBD.BC.No.84/03.03.01/2011-12 dated June 15, 2012 addressed to StCBs and CCBs and RPCD.CO.RRB.BC.No.85/03.05.033/2011-12 dated June 18, 2012 addressed to RRBs on ‘Home Loans - Levy of Fore-closure Charges/ Pre-payment Penalty’.

2. A reference is invited to Part B of the First Bi-monthly Monetary Policy Statement 2014-15 announced on April 1, 2014 proposing certain measures for consumer protection. It was indicated that in the interest of their consumers, banks should consider allowing their borrowers the possibility of prepaying floating rate term loans without any penalty. Accordingly, it is advised that StCBs, CCBs and RRBs will not be permitted to charge foreclosure charges/ pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect.

Yours faithfully,

(A. Udgata)
Principal Chief General Manager