The apex bank has sought comments on the draft guidelines.
“Availability of easy and affordable financing to Micro and Small Enterprises (MSEs) is of paramount importance. However, Reserve Bank’s supervisory reviews have indicated divergent practices amongst REs with regard to levy of foreclosure charges/ prepayment penalties in case of loans sanctioned to MSEs which lead to customer grievances and disputes. Further, certain REs have been found to include restrictive clauses in loan contracts/ agreements to deter borrowers from switching over to another lender, either for availing lower rates of interest or better terms of service,” the RBI said.
Based on a review of the supervisory findings and industry feedback, the RBI has decided to issue revised regulations to all REs regarding levy of foreclosure charges/prepayment penalties on loans.
According to the draft guidelines issued by the RBI on Tuesday, REs must allow foreclosure/prepayment of all floating rate loans sanctioned for purposes other than business to individuals, with or without co-obligant(s), without levying any charges/ penalties.
REs, other than Tier-1 and Tier-2 Primary (Urban) Co-operative Banks and Base Layer NBFCs, have been instructed not to levy any charges/ penalties in case of foreclosure/ pre-payment of floating rate loans granted to individuals and MSE borrowers, with or without co-obligant (s), for business purpose.”However, in case of MSE borrowers, these instructions shall be applicable up to the aggregate sanctioned limit of ₹7.50 crore per borrower,” the RBI said. “The above instructions shall be applicable irrespective of the source of funds used for foreclosure/ prepayment of loans, whether partial or in full,” the RBI said. “Applicability of above instructions for dual/special rate (combination of fixed and floating) loans will depend whether the loan is on fixed or floating rate at the time of foreclosure/ pre-payment,” it added.
In other cases, foreclosure charges/prepayment penalties, if charged, shall be as per the board approved policy of the REs. However, in such cases, foreclosure charges/ prepayment penalties levied by the REs shall be based on the outstanding amount in case of term loans and sanctioned limit in case of cash credit/ overdraft facilities, the RBI said. According to the draft guidelines, REs could permit foreclosure/prepayment of loans without stipulating any minimum lock-in period.
“REs shall not levy any charges retrospectively at the time of foreclosure/prepayment of loans, which were waived off by the REs/ not disclosed in advance to the borrowers, under any circumstances,” it said.
