**Policy Summary: RBI/2019-20/29 - Levy of Foreclosure Charges/Prepayment Penalty on Floating Rate Term Loans**
This circular, reference number RBI/2019-20/29 DBR.Dir.BC.No.0813/03.002/019-20 dated August 02, 2019, issued by the Reserve Bank of India (RBI), clarifies the policy regarding foreclosure charges and prepayment penalties on floating rate term loans. Addressed to all Scheduled Commercial Banks (excluding RRBs), Small Finance Banks, and Local Area Banks, this circular reinforces previous directives outlined in circulars DBOD.No.Dir.BC.107/13.03.00/2011-12 dated June 5, 2012, and DBOD.Dir.BC.No.110/13.03.00/2013-14 dated May 7, 2014. The key clarification is that banks are prohibited from levying foreclosure charges or prepayment penalties on *any* floating rate term loan sanctioned to individual borrowers, with or without co-obligants, for purposes *other than business*.
For further information, Dr. S. K. Kar, Chief General Manager, can be contacted.
Key Entities Referenced
Reserve Bank of India: The central bank of India, also referred to as RBI.
Scheduled Commercial Banks: All commercial banks in India that are listed in the Second Schedule to the Reserve Bank of India Act, 1934.
Regional Rural Banks: Regional Rural Banks (RRBs) are financial institutions in India that operate at the regional level.
Small Finance Banks: Small Finance Banks are a type of banking institution in India licensed by the Reserve Bank of India to provide basic banking services.
Local Area Banks: Local Area Banks (LABs) are private sector banks in India.
DBOD.No.Dir.BC.10713.03.00201112 dated June 5, 2012: A circular issued by the Reserve Bank of India regarding banking operations and regulations.
DBOD.Dir.BC.No.11013.03.00201314 dated May 7, 2014: A circular issued by the Reserve Bank of India regarding banking operations and regulations.
Dr. S. K. Kar: Chief General Manager at Reserve Bank of India.
RBI/2019-20/29
DBR.Dir.BC.No.08/13.03.00/2019-20 August 02, 2019
All Scheduled Commercial Banks
(Excluding RRBs)
All Small Finance Banks
All Local Area Banks
Dear Sir / Madam
Levy of Foreclosure Charges /Pre-payment Penalty on Floating Rate Term Loans
Please refer to our circulars DBOD.No.Dir.BC.107/13.03.00/2011-12 dated June 5,
2012 and DBOD.Dir.BC.No.110/13.03.00/2013-14 dated May 7, 2014, in terms of which
banks are not permitted to charge foreclosure charges / pre-payment penalties on home
loans / all floating rate term loans sanctioned to individual borrowers.
2. In this connection, it is clarified that banks shall not charge foreclosure charges/ pre-
payment penalties on any floating rate term loan sanctioned, for purposes other than
business, to individual borrowers with or without co-obligant(s).
Yours faithfully,
(Dr. S. K. Kar)
Chief General Manager