Our Bureau
Mumbai
On this Wednesday, July 2nd, the Reserve Bank of India (RBI) has instructed banks and other financial institutions not to levy any pre-payment charges on all floating rate loans and advances. They have also been instructed to not include pre-payment charges on any amount taken for business objectives by any individual or Micro and Small Enterprises (MSEs).
As per the current rules and regulations, the RBI prohibits banks and NBFCs to impose any penalties on foreclosure or pre-payment on floating rate term loans. These loans are generally given to individual borrowers for non-business purposes in which case RBI limits the imposition of pre-payment penalties. The recent directives have significantly increased the entire scope as they will be covering business loans in it.
The new norms introduced by the RBI state,
- Any Commercial Bank (not including Small Finance Banks, Regional Rural Banks, and Local Area Banks), Tier 4 Urban Co-operative Banks, NBFCs–Upper Layer (NBFC-UL), and All India Financial Institutions are not permitted to charge any pre-payment penalty on loans given to individuals and MSEs for business use.
- For amount up to Rs. 50 lakhs for a loan that is not for any business purposes, entities like small finance banks, regional rural banks, Tier 3 urban co-operative Banks, State/Central Co-operative banks, and NBFCs–middle layer are not permitted to impose such charges.
The RBI has stated that these terms and conditions must be clearly disclosed in any future loan agreements and sanction letters. These new rules will be applicable on all the loans that will be sanctioned or renewed on or after January 1, 2026. The RBI has stated that through these changes they are trying to make sure that there is a route for an easy and seamless financing for MSEs.
