The
RBI ( Reserve Bank of India) recently directed state & central co - operative
banks to stop levying penalty on pre-payment of housing loans on floating
interest rates with immediate effect
RBI
said in a notification, "...it has been decided that banks will not be
permitted to charge foreclosure charges
or pre-payment penalties on housing loans on the floating interest rate
basis, with immediate effect,"
Earlier
this month (June 2012), RBI had also asked the commercial banks to stop
charging such fines.
RBI said, ''The removal of pre-closure charges
or pre-payment penalty on housing loans will lead to reduction in the
discrimination between existing &
new borrowers and competition among banks will result in finer pricing
of the floating rate housing loans. Though many banks have in the recent past
voluntarily abolished pre payment penalties on floating rate home loans, there
is a need to ensure uniformity across the banking system," it said.
RBI
in its monetary policy for 2012-13 had proposed that all banks should not be
permitted to levy such charges with a view to bring uniformity across the
banking system in the home loan segment.
The
committee on Customer Services in Banks under Mr. M. Damodaran (Ex. SEBI Chairman) had
expressed that foreclosure of charges levied by banks on prepayment of housing
loans was resented upon by housing loan borrowers & the banks were hesitant in passing on the
benefit of lower interest rates to existing borrowers in a falling interest
rate scenario.
As
such, pre closure charges are seen as a restrictive practice deterring the
borrowers from switching over to cheaper available source.
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