NBFCs Can’t Charge Prepayment Penalties On Floating Rate Loans To MSEs; New RBI Rule Applicable From… | Personal Finance News
New Delhi: The Reserve Bank of India has directed banks and other lenders not to charge pre-payment penalties on all floating-rate loans and advances, including for business purposes, availed by individuals and micro and small enterprises (MSEs).
RBI’s direction will applicable to all loans and advances sanctioned or renewed on or after January 1, 2026.
Reserve Bank in its directive has mentioned that 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.
RBI said that these Directions shall apply to all commercial banks (excluding payments banks), co-operative banks, NBFCs and All India Financial Institutions.
The central bank added thatfFor all loans granted for purposes other than business to individuals, with or without co-obligants, an RE shall not levy pre-payment charges;
(ii) For all loans granted for business purpose to individuals and MSEs, with or without co-obligant(s):
(a) A commercial bank (excluding Small Finance bank, Regional Rural bank and Local Area bank), a Tier 4 Primary (Urban) Co-operative bank, an NBFC-UL, and an All India Financial Institution shall not levy any pre-payment charges.
(b) A Small Finance bank, a Regional Rural bank, a Tier 3 Primary (Urban) Co-operative bank, State Cooperative bank, Central Cooperative bank and an NBFC-ML shall not levy any pre-payment charges on loans with sanctioned amount/ limit up to Rs 50 lakh.
In case of cash credit/ overdraft facilities, no pre-payment charges shall be applicable if the borrower intimates the RE of his/ her/ its intention not to renew the facility before the period as stipulated in the loan agreement, provided that the facility gets closed on the due date.
An RE shall not levy any charges where pre-payment is effected at the instance of the RE, RBI added.
