Home loan: RBI says no penalty on prepayment

Removal of the charges or penalty 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


Mumbai: In a relief to number of borrowers, the Reserve Bank of India (RBI) has asked banks to immediately stop charging penalty on pre-payment of home loans taken on floating interest rates, reports PTI.

"It has...been decided that banks will not be permitted to charge foreclosure charges or pre-payment penalties on home loans on floating interest rate basis, with immediate effect," the Reserve Bank said in a communication to banks.

The RBI noted that the Damodaran Committee had observed that foreclosure charges levied by banks on prepayment of home loans were resented by home loan borrowers. This is particularly so considering that 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, it added.

"As such, foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source," the RBI said.

According to the central bank, the removal of the charges or penalty 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 added.

Some banks were charging pre-payment penalty of 1%-2% of the outstanding loans.

With an aim to ensure uniformity across the banking system in home loan segment, the RBI in the annual monetary policy for 2012-13  had proposed "not to permit" banks to levy the charges. It had said that detailed guidelines in this regard would be issued separately.

Last year, a consensus was reached at the Banking Ombudsmen Conference that banks should not impose pre-payment charges on loans with a floating rate of interest.

Earlier, housing finance regulator National Housing Bank (NHB) had directed all housing finance companies to desist from imposing a pre-payment penalty. NHB, which regulates 54 housing finance companies, including mortgage major HDFC, LIC Housing Finance and Dewan Housing Finance, had said that if the borrower want to pre-close a housing loan out of their own sources, then there should not be any penalty.

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Mr Jagdish Patel

4 years ago

Nice and eye opening though we knoe the health standards at varoius places.

i would like to start this activity in Vadodara, Gujarat. Kindly advise.


4 years ago

Pl give the address where to sent the RTI application for this purpose. Thanks.

Nitin K

4 years ago

Very interesting article , sad how the lives of the customer who pay is risked all over the world , kids eating this food are getting infected , i wish thta very restaurants we always say thta food is very good are playing with lives by not giving clean food following proper norms of cleanliness , excellent article by mrs deshmukh in covering this topic , keep up the good work

Sensex, Nifty uptrend intact: Thursday Closing Report

Nifty’s next resistance is at 5,100

The market closed in the positive on easing of the debt problems in Europe. An appreciation in the rupee also supported the upmove. Yesterday we had mentioned that if the Nifty manages to close above 5,020, we may see the index reaching the level of 5,200. Today the Nifty closed well above this level. The benchmark has to firmly close above 5,100 for the upmove to continue. The National Stock Exchange (NSE) saw a volume of 64.92 crore shares.

The market continued its upmove for the successive fourth day as it opened in the positive on firm cues from the global arena. US markets closed higher overnight as European leaders were looking a ways to help Spain deal with its troubled banks and comments from the Federal Reserve that economic growth has improved in the last two months. This optimism also supported Asian markets this morning, which were mostly in the green in morning trade.

The Nifty opened at 5,035, up 38 points over its previous close, and the Sensex surged 124 points to resume trade at 16,578. While select buying in the morning session helped the indices to move northwards, choppy trade capped the gains.

The rupee appreciated by 18 paise to 55.18 against the US dollar in early trade following a rising trend in the equity market and dollar selling by exporters and banks. On Wednesday, the rupee had gained 28 paise to close at a one-week high of 55.36 against the dollar.

The market fell to its intraday low in late morning trade. At this point the Nifty went back to 5,008 and the Sensex touched 16,520. However, buying in blue chips and a positive trend in the European markets pushed the local market higher in the noon session.

Sectors like banking, realty, metal and auto, which saw good buying interest in post-noon trade, pushed the benchmarks higher. The push enabled the benchmarks hit their intraday highs towards the end of the trading session. At the highs the Nifty rose to 5,060 and the Sensex scaled 16,681.

The market closed marginally off the lows. The Nifty gained 58 points to 5,055 and the Sensex settled at 16,649, up 195 points.

Markets across Asia closed mostly higher on hopes that European leaders would find ways to help Spain to infuse additional liquidity into its banks. Besides, comments from Federal Reserve vice chairman Janet Yellen that the lacklustre growth in the job market and flagging stock markets may lead to additional stimulus to spur growth.

The Hang Seng advanced 0.85%; the KLSE Composite rose 0.37%; the Nikkei 225 surged 1.24%; the KOPSI Composite jumped 2.56% and the Taiwan Weighted gained 0.34%. Among the losers, the Shanghai Composite declined 0.71%; the Jakarta Composite shed 0.02% and the Straits Times settled 0.06% lower.

At the time of writing, the key European markets were trading with gains of 0.37% to 0.67% while the US stock futures were mixed.

Back home, institutional investors—foreign and domestic—were net buyers in the equities segment on Wednesday. While foreign institutional investors pumped in Rs269.21 crore, domestic institutional investors infused 489.14 crore.


SBI cuts fixed deposit rates by 0.25% to 7%

SBI's interest rate on 7-179 days fixed deposit would come down to 7% from the existing 7.25%.

New Delhi: Ahead of the Reserve Bank of India (RBI)'s mid-quarter review of the monetary policy later this month, country's largest lender State Bank of India (SBI) on Thursday slashed fixed deposit rates by 0.25% for select maturities, reports PTI.

The bank has decided to revise its retail term deposit interest rates with a reduction by 0.25% in tenors up to 240 days, SBI said in a statement. The new rates would be effective from Friday.

RBI is scheduled to announce mid-quarter review of monetary policy on 18th June. It is expected that the central bank may cut policy rate by by 0.25% to spur growth.

Even RBI Deputy Governor Subir Gokarn had said that there is a room to ease policy stance in the light of moderating growth and falling crude oil prices.

With the revision, SBI's interest rate on 7-179 days fixed deposit would come down to 7% from the existing 7.25%. Even for 180 days term deposit, the interest rate would be 7%, down 0.25%.

The base rate or minimum lending rate of SBI stands at 10%. Base rate is the benchmark rate below which a bank cannot lend.

The bank last revised its fixed deposit rates in April. It slashed interest rates on fixed deposits by up to 1% across various maturities.

The decision had come following the RBI's decision to cut key interest rate by 0.5% to 8% in its annual credit policy during April.


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