The Reserve Bank of India (RBI) Tuesday announcedremoval of foreclosure charges/prepayment penalty on home loans with floatinginterest rates.
In a notification, the central bank said that it had beenobserved that home loan borrowers across the board resented foreclosure chargeslevied by banks on prepayment of home loans.
"This is especially since banks were found to behesitant in passing on the benefits of lower interest rates to the existingborrowers in a falling interest rate scenario," the RBI said.
"As such, foreclosure charges are seen as a restrictivepractice deterring the borrowers from switching over to cheaper availablesource," the notification said.
The removal of foreclosure charges/prepayment penalty onhome loans would lead to reduction in the discrimination between existing andnew borrowers and competition among banks would result in finer pricing of thefloating rate home loans, the bank said.
Though many banks had in the recent past voluntarilyabolished prepayment penalties on floating rate home loans, there was a need toensure uniformity across the banking system, the statement said.
"It has, therefore, been decided that banks will not bepermitted to charge foreclosure charges/prepayment penalties on home loans onfloating interest rate basis, with immediate effect," it said.