Jagoinvestor
June 15, 2012
Prepayment Charges abolished by RBI
This is a little old news. RBI has finally abolished Prepayment charges or penalty on home loans with floating interest rates. Borrowers can now transfer to new lender which provides them less interest rates without paying any kind of charges or penalty. Damodaran Committee on customer service in banks, RBI) has been observed that banks have been unfair in asking for charges when home loan borrowers want to switch to some other lender with lesser interest rates. Now if you prepay the loan from your own sources or through another lender, you only pay the outstanding loan amount.
Here are the excerpts from the circular from RBI on abolition of fore-closure charges/pre-payment penalty
2. In this context, attention is invited to paragraphs 81 to 83 of the Monetary Policy Statement 2012-13 announced on April 17, 2012 with regard to home loans on floating interest rates. The Committee on Customer Service in Banks (Chairman: M. Damodaran) had observed that foreclosure charges levied by banks on prepayment of home loans are resented upon by home loan borrowers across the board especially since 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. As such, foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source.
3. The removal of foreclosure charges/prepayment penalty on home loans will lead to reduction in the discrimination between existing and new borrowers and competition among banks will result in finer pricing of the floating rate home loans. Though many banks have in the recent past voluntarily abolished pre-payment penalties on floating rate home loans, there is a need to ensure uniformity across the banking system. It has, therefore, been decided that banks will not be permitted to charge foreclosure charges/pre-payment penalties on home loans on floating interest rate basis, with immediate effect.
Prepayment Charges removal will help !
This new rule will surely be taken in good spirit by borrowers and end the discrimination done by banks between old and new customers. This will also make sure that the interest rates become more competitive in the overall system.
Have you prepaid your home loan just some time back with charges ? Are you going to prepay the loan soon after this Prepayment Charges removal ? What are your thoughts about this new circular !
Hi Manish,
I have a Pre-approved Loan from Citi Bank, As I had a credit card with them. When I asked them for Pre-closure of the Loan, They had applied Pre closure charges and the final amount was greater than the amount if I had paid the complete EMI. On Raising the Issue with Citi bank they were not budging. As far as I know the Pre-Closure charges were charged for the bank to compensate for the loss which it would incur on the loss of income due to the future interest. however the same cannot addup to be greater than the amount to be paid for the remaining Interest. Please help on any guidelines I can convey to them on this.
Yes, generally the preclosure charges are some percentage of the outstanding balance ! .
However the pre closure Charges are exceeding the outstanding Interest amount. Is it legally correct.
If its written in the terms and condition sheet. Check your agreement , what is written there !
The no penalty charge on pre-payment / pre-closure of loans is applicable prospectively or retrospectively?? I mean is it applicable for all home loans taken or only those taken after the circular???
Its applicable on all home loans
I am transferring outstanding loan amount from gic to HDFC but gic is charging 2% foreclosure charges on my balancing amount . can you suggest me how ill fight against them and what is the procedure to waive off this charges?
Hi KAUSTUBH
HDFC Home Loan and GIC comes in the preview of NHB . Only those home loan that come under the preview of RBI cannot charge foreclosure charges. They are running according to rules in this situation. You need to pay the foreclosure charges.
I have taken homeloan from syndicate bank in June 2012 @9.7%, now I want to switch to SBI bank @9.4%, Syndicate bank is charging 2% on outstanding principle (41 lacs) for transfer (takeover by other bank). is it correct ?
Yes
Dear Manish,
As per your articles first para,
“Borrowers can now transfer to new lender which provides them less interest rates without paying any kind of charges or penalty…..Now if you prepay the loan from your own sources or through another lender, you only pay the outstanding loan amount”
And also as per the RBI Circular point no 3 cited above it is mentioned that, ” It has, therefore, been decided that banks will not be permitted to charge foreclosure charges/pre-payment penalties on home loans on floating interest rate basis, with immediate effect’
So as per the above points,
in Mr Ravi’s question that, Is syndicate bank correct in charging 2% on outstanding principle ? … how is it correct for the bank to charge 2% on outstanding loan. The RBI circular mentions that any kind of prepayment penalty is not allowed – So according to my interpretation even if it is takeover is from other bank Mr Ravi should not be charged 2%
The above rule is for home loan. Are we talking about home loan here ?
Dear Manish,
Thank you for your reply. Yes the above query by Mr Ravi seems to be for Home Loan. So is syndicate bank correct in charging Mr Ravi prepayment penalty of 2% as it is a takeover case by SBI. I amfacing the same problem, OBC is charging me 2% as takeover penalty stating that the funds are not thro your own source.
I think they are correct as per terms and condition
If a company has not requested for renewal of working capital limits in existing bank and account was taken over by other bank after the expiry date whether earlier bank has right to recover foreclosure charges as per earlier sanction letter as effective date of those terms are binding till renewal due date. Moreover borrower had requested for enhancement of working capital facilities three months before renewal and advised the bank to renew our facility only if they are able to enhance the facilities, all the correspondence clearly shows it, now customer has not requested for renewal nor they have signed any renewal letter also there is no communication from the bank either for demand of documents for renewal or intimation of renewal, finally when they have written mail to the borrower after 10 days of expiry date , the very next day Pay orders by takeover bank presented to their existing bank. Also request you to confirm whether fund based or non fund based or both facilities are subject to foreclosure charges.
Hi Neeraj
Thanks for asking your question. However, I dont think I am eligible to answer your query as its either out of scope of my knowledge or its not related to money matter directly
Manish
Hello neeraj ,
I Am Facing The Same Issue With kotak mahindra bank , they are charging us foreclosure even after expiry of cc facilyt period What Happened in your case Can you Please Advise ?
We Are Thinking Of Filing a suit against bank for non returning of documents instead demanding foreclosure charges ,
Can you PLease help us out what happened in your case
em id : divyansh at live dot com
my no
9 8 9 9 . 58.0 .,009
Divyansh
Hi I have take the PL from Bajaj Finance in Jun 2015 at the time of disbursement bank said there is no any foreclosure or prepayment charges will be applicable. but in Jun 2016 I am going to foreclose my loan now bank is charging 4% foreclosure charges.
I request you kindly provide me your opinion in this scenario.
Waiting of your replay
Regards,
Neelkanth
If your agreement with the lender says that there will be 4% penalty, then you will have to pay that!
Dear Manish ji please help me
i have a cc limit of state bank of patiala now i want to switch the bank and take over limit of Hdfc bank,HDFC bank pay accrude intrest and principle amount
Sbp bank ask pay take over charges 4.25% is justify please reply
Its there rules, you either take it or dont take it !
i am transferring outstanding house building loan amount from Indian Overseas Bank to LICI . but Indian Overseas Bank is charging 2% penalty on my balancing amount . can any body suggest me how will fight against them and what is the procedure?
Is it not as per terms and conditions ? Why it is about fighting and not fighting . Things happens as per terms and conditions on the agreement which you have signed!
dear manish ji,
i hav taken housing loan @9.6% from lichf in which they hv provided it to me for fixed term of 2 yrs then after 2 yrs for 9 years it will be floating int rate .Now SBI is providing housing loan @9.45% .and I hv came to know that as per rbi rulesany bank / lichf can not take preclosure charges during fixed term of 2 yrs? wheter it is correct ? i hv take 13 L from lichf @9.6% in month of november 2015 now i want to switch over to SBI @ 9.45 % whether lichf will charge 2% on outstanding loan amout or not.i am also not happy abt services of lichf ? it will be a great help for me from you if u can provide info with proof on my email? [email protected]
Yes that is correct !
unable to understand what is correct?
I have taken a Used Car Loan from HDFC Bank in Jan 2013 for our Company, Shivshakti Engineering Company. I had written HDFC Bank for foreclosure of the loan but they are reluctant and gives sweet replies that their Bank Manager called us but it has never happened so. I had deputed my collegue to HDFC Bank counter at Kolkata and understood that we need to pay some foreclosure charges to the tune of 4% extra. I heard that RBI has passed a resolution that no extra charges can be collected by Bank for foreclosure of loan. Is it correct??? Can I approach the banking ombudsman for this or some other appropriate authorities? Please guide.
Its only applicable on home loan
Dear Manish,
i have taken an agri term loan from Hdfc bank, now i am planning to takeover the same loan to federal bank, which is of offering lower interest,. But when i asked about the out standing amount to be payed , they have provided the statement in which,they added the preclosing charges of 4.58% on the out standing balace to the outstantingamount. when i checked the new circular of RBI , i have found that , there is no preclosing charges for any type of term loans taken in the name of individual. so as an individual borrower will i get the advantage of the circular of RBI. Please advise me
THat is applicable to home loan !
Sir, I have availed HDFC Loan against property 3 years ago.Now I would like to preclose LAP loan.Does the non payment of preclosure amount by RBI guidelines apply to LAP taken from HDFC.
Thanks.
Jagdish
No
I have a housing loan with LIC HF co with Fixed ROI. The fixed period of 2 years is over. During fixed period LICHF charged 10.10 and now they propose to charge 10.5 which is around 1% higher that SBI. I want to switch over to SBI.
Can any body clarify me whether LICHF will take prepayment charges even though fixed period is over.
Yes, the prepayment charges will be taken
u can switch over to sbi as 2 yrs have been completed ?
GIC HOUSING FINANCING IS NOT COMING UNDER RBI RULE .?
CAN ANY BODY TELL ME PLZZ GIVE FAST REPLY
No , its not a bank !
as per rbi rule gic have not decreased the rate of interest rate by 5%. suggest me who are apllicabe ?
i am transfering outstandin loan amount from gic to icici . but gic is charging 2% penalty on my balancing amount . can any body suggest me how ill fight against them . and what is the procedure?
Hi rinkee
This is very specific query which you should follow up with the concerned authority only. We wont be able to comment on that
Manish
I have applied for the LAP with MAGMA FINCORP LIMITED , with specific condition that there should not be foreclosure charges , when ever i will close the loan. Accordingly, the company has issued me the sanctioned letter where they specifically mentioned in front of foreclosure charges as NIL, considering the conditions i availed the loan. Now when i m asking for the foreclosure statement from the company, the company is charging foreclosure charges of 4% plus service tax, which is an unjustified charges levied on our account. the company officials is not ready to edit it. Kindly guide how to proceed in this case further, as the jurisdictional area of the company will be kolkata, which will be very difficult to travel from rajasthan.
Sue them . What else one can do if one party is breaching the agreement.
Manish
i have teken personal loan in hdfc bank dated 0104 2014 plese forcloser charge
Hi harish kumar
This is very specific query which you should follow up with the concerned authority only. We wont be able to comment on that
Manish
I had taken a lap from icici in personal name at floating rate but coapplicant is my firm and they are charging me 4% prepayment charges whether it can be waived with the help of rbi guideline
I dont think it will be waived off ..
Hey Manish,
I have a home loan with LIC housing finance and I am planning to foreclose the loan by paying off the money I have saved in my account. I got the foreclosure document that includes broken period interest, document retrieval charges, are those two valid ?
You help is greatly appreciated.
Thanks,
Suman
I didnt get your query