National Housing Bank last week waived pre-payment penalty on home loans that are on floating interest rates, pre-closed through any source. For home loans that are on fixed interest rates, home finance firms cannot charge pre-payment penalty if loan is preclosed out of one's own sources.
The RBI (Reserve Bank of India) will soon begin discussions with banks to end the penalty.
Mr. D Subbarao, RBI governor said, “The question is not whether the prepayment penalty will be waived, But when and how,“
The same would not be extended to fixed rate loans.
Mr. D Subbarao also said, ''“There is a proposal to waive it in a floating rate loans, because if the borrower had opted for floating rate and if rates fell afterwards, that borrower was not getting the benefit of the decline. The borrower also could not switch to another bank because of the deterrence of pre-payment penalty.“The reason why we are not forcing it upon banks is that home loan is a contract between the bank and the borrower. So, there is a natural reluctance to enter from the regulation side. However, should banks not move in the right direction, we will do something assertive than cajoling them. RBI will give banks one or two months to adjust for the waiver of prepayment penalties.""
Outstanding housing loans, including priority sector loans, stood at Rs 3,64,170 crore as on August 26, 2011 According to estimates, up to 95% of these are on floating rates.
RBI deputy governor Dr. KC Chakrabarty will take a meeting with Indian Banks’ Association (IBA) in the next one month to discuss waiving pre-payment penalty. There will be some movement on it.
According to Mr. Mallya, Chairman, IBA,'' There were 131 points that the former SEBI Chairman Damodaram Committee had recommended, of which a consensus has been built on 88 points. For the remaining 43 points, we will continue discussions with banks. Banks had agreed to 10 action points. Now they have a problem. We will try to build a consensus and implement it "
The RBI (Reserve Bank of India) will soon begin discussions with banks to end the penalty.
Mr. D Subbarao, RBI governor said, “The question is not whether the prepayment penalty will be waived, But when and how,“
The same would not be extended to fixed rate loans.
Mr. D Subbarao also said, ''“There is a proposal to waive it in a floating rate loans, because if the borrower had opted for floating rate and if rates fell afterwards, that borrower was not getting the benefit of the decline. The borrower also could not switch to another bank because of the deterrence of pre-payment penalty.“The reason why we are not forcing it upon banks is that home loan is a contract between the bank and the borrower. So, there is a natural reluctance to enter from the regulation side. However, should banks not move in the right direction, we will do something assertive than cajoling them. RBI will give banks one or two months to adjust for the waiver of prepayment penalties.""
Outstanding housing loans, including priority sector loans, stood at Rs 3,64,170 crore as on August 26, 2011 According to estimates, up to 95% of these are on floating rates.
RBI deputy governor Dr. KC Chakrabarty will take a meeting with Indian Banks’ Association (IBA) in the next one month to discuss waiving pre-payment penalty. There will be some movement on it.
According to Mr. Mallya, Chairman, IBA,'' There were 131 points that the former SEBI Chairman Damodaram Committee had recommended, of which a consensus has been built on 88 points. For the remaining 43 points, we will continue discussions with banks. Banks had agreed to 10 action points. Now they have a problem. We will try to build a consensus and implement it "
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