Consumer Issues
No pre-payment charges on floating rate term loans: RBI

RBI has already prohibited banks from charging penalty for prepayment of home loans and now the same has been extended to individual term loans

The Reserve Bank of India (RBI), on Wednesday said that banks should allow customers to prepay floating rate term loans without any penalty.


“It is advised that banks will not be permitted to charge foreclosure charges/ pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect,” the RBI said in a statement.


The central bank in its first bi-monthly policy on 1 April 2014 had said that banks should also not take undue advantage of customer difficulty or inattention. "In the interest of their consumers, banks should consider allowing their borrowers the possibility of prepaying floating rate term loans without any penalty," RBI had said.


RBI also said that in the interest of their customers, banks should consider allowing their borrowers the possibility of prepaying floating rate term loans without any penalty. RBI has already prohibited charging of penalty for prepayment of housing loans of individual customers, and wanted to extend the same benefit to all type of floating rate term loans, which will help small and medium enterprises as well.


Customers tend to pre-pay their term loans when they find that interest rates have risen. Some customers foreclose their loans with existing banks by switching to banks who offer loans at lower rates.


Earlier in June 2012, the RBI had asked commercial banks to stop levying penalty on pre- payment of home loans on floating interest rates. "Removal of foreclosure charges or pre-payment 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," the central bank had said.


RBI in its monetary policy for 2012-13 had proposed that banks should not be permitted to levy such charges with a view to bring uniformity across the banking system in the home loan segment.


The committee on Customer Services in Banks under M Damodaran had expressed that foreclosure of charges levied by banks on prepayment of home loans was resented upon by home loan borrowers and the banks were hesitant in passing on the benefit of lower interest rates to existing borrowers in a falling interest rate scenario.


Now, children above 10 years can operate own bank account, ATM card

Minors above 10 years can now open and operate independently savings bank account and use other facilities like ATM, cheque books and internet banking

The Reserve Bank of India (RBI) on Tuesday issued guidelines allowing minors above 10 years to operate bank accounts independently in order to promote financial inclusion and bring uniformity in opening of such accounts in banks.


Earlier the central bank had permitted minors to open fixed and savings deposit bank account with mothers as guardian.


Modifying its guidelines, the RBI said all minors can now open a savings, fixed and recurring bank deposit account through either his or her natural guardian or legally appointed guardian.


The minors who have attained 10 years of age, would be allowed to open and operate savings bank accounts independently.


"Banks may, however, keeping in view their risk management systems, fix limits in terms of age and amount up to which minors may be allowed to operate the deposit accounts independently," the RBI said.


Further, the banks can also decide on the minimum documents which are required for opening of accounts by minors.


"Banks are free to offer additional banking facilities like Internet banking, ATM/debit card and cheque book facility, subject to the safeguards that minor accounts are not allowed to be overdrawn and that these always remain in credit," the RBI said.


On attaining majority, the minor would be required to confirm the balance in his or her account.


RBI said, if the account was operated by the natural/legal guardian, fresh operating instructions and specimen signature of the minor should be obtained and kept on record for all operational purposes.



Bapoo Malcolm

2 years ago

Could not be better for ensuring the savings habit.

BUT, the lawyer takes over. What about bouncing cheques? The minor cannot be prosecuted. Therefore, the cheque-book meeds to mark out that this is minor's account, next to the printed name.

The ATM card is a bit of a worry. The kids will be harassed by the seniors; maybe even kidnapped. If a maximum amount per day is fixed, it may or may not help. Frustrated crooks most often turn violent.

Yet, with safeguards, the habit must be encouraged.

Bapoo M. Malcolm


Nagesh Kini

In Reply to Bapoo Malcolm 2 years ago

Bapoo - RBI has left it to the banks to fine tune. Do hope all the Banks and IBA will address your concerns that are absolutely valid and proper safeguards need to put in place before it is launched.
Possibly fixing an absolute maximum of Rs.5000 at any time can prevent abuses mentioned by you.

Nagesh Kini

2 years ago

Taking financial literacy to the class room at an early age!

Non-operative bank accounts exempted from minimum balance penalty

RBI,  as part of a consumer protection initiative, has asked banks not to levy penalties on customers who don't maintain a minimum balance in any inoperative account

The Reserve Bank of India (RBI) on Wednesday directed all banks not to levy penal charges for non-maintenance of minimum balances in any inoperative account.


Earlier, in its first bi-monthly monetary policy, the central bank has proposed certain measures towards consumer protection such as non-levy of penal charges for non-maintenance of minimum balance in any inoperative accounts.


Several banks, including the State Bank of India (SBI), do not levy any charge if the minimum balance is not maintained in an inoperative savings account.


In the first bi-monthly monetary policy statement for 2014-15, the RBI had asked banks not to levy penal charges on customers who do not maintain minimum balance in basic savings bank accounts. RBI governor Dr Raghuram Rajan, however, had said that banks, instead of levying penal charges for non-maintenance of minimum balance in ordinary savings bank accounts, banks should limit services available on such accounts to those available to basic savings bank deposit accounts and restore the services when the balances improve to the minimum required level.


For operative accounts, customers of ICICI Bank and HDFC Bank are charged Rs750 per quarter if they don't maintain a minimum average quarterly balance of Rs10,000 in urban centres and Rs5,000 in semi-urban areas.


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