Is prepayment penalty on home loan top up loan allowed by RBI ?

POSTED BY jrd999 ON February 4, 2014 9:10 am COMMENTS (6)


I have two loans outstanding from Stanchart,one is a home loan and another is a topup, i have applied for preclosure of both since HSBC is offering a better rate,however SCB is charging 2.5 pc prepayment penalty on the top up,is it legally allowed as RBI has abolished penalty on all floating rate home loans.



6 replies on this article “Is prepayment penalty on home loan top up loan allowed by RBI ?”

  1. Credexpert says:

    Dear Jatin,

    If both the loans are floating interest rates and related to your home loan, then yes the prepayment penalty should be abolished.


    1. jrd999 says:

      thank you Credexpert, also RBI’s press release dated 31/01/2014 has asked Indian Bankers Association to remove prepayment penalty on all floating rate loans(not only home loans) at the earliest

  2. jrd999 says:

    thanks,will do

  3. ashalanshu says:

    Dear Jatin, Please try to negotiate with your bank on the basis of response of what other banks are saying.



  4. ashalanshu says:

    Dear jatin, top up loan is although given on home loan rates but it’s a secured personal loan in a sense, hence it’s not eligible for prepayment penalty waiver. so you need to pay the penalty if you want to preclose.



    1. jrd999 says:

      Thank you Ashal, but i checked with other banks like HSBC,SBI and they are of the opinion that prepayment penalty on floating rate home loans of any kind is not valid,only Loan against property (LAP) prepayment attracts penalty.
      hsbc,sbi,bob and icici dont charge prepayment penalty on top up and the rbi circular says that with a view to bringing in uniformity across the banking system prepayment penalty has been abolished on all floating rate home loans,so i dont think some banks can interpret it differently from others

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