Relief for borrowers as RBI’s guidelines on loan prepayment to come into force from January 1 | Mint

The Reserve Bank of India (RBI) has released a set of guidelines with regards to levy of prepayment charges in case of loans sanctioned to MSEs, something that tends to leave the customers disgruntled and annoyed. Read this Livemint article for details on this.

Additionally, some banks impose restrictions on borrowers to prevent them from switching their loan to another lender to seek for better terms and conditions. RBI early this month released a set of guidelines titled RBI (pre-payment charges on loans) Directions 2025.

These directions — applicable to all commercial banks (excluding payments banks), cooperative banks and NBFCs — will come into force from January 1 next year.

RBI’s guidelines with regards to prepayment of loan

I. These directions will be applicable to regulated entities (i.e., banks, NBFCs and others) regarding levy of pre-payment charges on all floating rate loans and advances.

II. There will be no pre-payment charges for all the loans granted for purposes other than business to individuals.

III. And even when the loan is disbursed for business purposes, there will be no prepayment charge in case of a commercial bank, a tier 4 primary (urban) cooperative bank, an NBFC-UL (upper layer) and an all-India financial institution.

IV. Additionally, there will be no pre-payment charges on loans with sanctioned amount/limit up to ₹50 lakh in case of a small finance bank, regional rural bank, a Tier 3 primary (urban) cooperative bank, State Cooperative bank, Central Cooperative bank and an NBFC-ML (middle layer).

V. In cases other than those mentioned above, pre-payment charges will be as per the approved policy of the RE.

VI. In case of term loans, pre-payment charges — if levied by the RE — will be based on the amount being prepaid.

VII. In case of cash credit/ overdraft facilities, pre-payment charges can be levied only on an amount which does not exceed the sanctioned limit.

VIII. In case of cash credit or overdraft facilities, no pre-payment charges can be charged so long as the borrower tells the bank about his intention of not renewing the overdraft facility prior to the period as mentioned in the loan agreement.

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