[Resolved]  HDFC Bank — Prepayment Charges

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No prepayment penalty on home loans on floating rate, RBI says June 7th, 2012 | Author: sushmita

No prepayment penalty on home loans on floating rate, RBI says
Reserve Bank of India (RBI) has taken the decision that banks cannot impose foreclosure charges or prepayment penalty on home loans on floating rate. The order is to be implemented with immediate effect.

The 5th June circular mentions that RBI warned banks to strictly follow the instructions. The apex bank thinks that removal of foreclosure charges and prepayment penalty on home loans would reduce rate discrimination between existing and new borrowers and competition among banks and hence result in finer pricing of floating rate home loans.

Even before RBI had come out with such a circular, banks including State Bank of India and Axis Bank Ltd did not charge any prepayment fee or foreclosure charges, but there were a few banks that continued to do so.

Says Kiran Telang, chief financial officer, ABT Capital Advisors, a Mumbai-based financial planning firm, “Now that all banks will have to follow the guideline, this move will give all borrowers the option to move to a lower rate with the same bank or possibly would also allow you to switch to another bank.”

After the last policy rate cut in April, lending rates came down on various types of retail loans. A lot of banks reduced their base and benchmark prime lending rates (BPLR), making home loans slightly cheaper.

For instance, Federal Bank Ltd reduced its base rate by 20 basis points, while Kotak Mahindra Bank Ltd, ICICI Bank Ltd and IDBI Bank Ltd reduced their base rates as well as BPLR by 25 basis points each.