The Reserve Bank of India (RBI) on February 21, 2025, invited comments on the draft circular on ‘Responsible Lending Conduct – Levy of Foreclosure Charges/ Pre-payment Penalties on Loans’.
The Draft issued revised regulations on the levy of foreclosure charges and pre-payment penalties on loans to ensure responsible lending practices and protect borrowers from restrictive clauses in loan agreements. The revised guidelines prohibit Regulated Entities (REs) from charging foreclosure/pre-payment penalties on floating rate loans sanctioned for non-business purposes to individuals. Additionally, REs (except certain co-operative banks and base layer NBFCs) cannot impose such charges on floating rate loans granted to individuals and Micro & Small Enterprises (MSEs) for business purposes, up to a sanctioned limit of ₹7.50 crore per borrower. The regulations apply regardless of the source of funds used for repayment and require disclosure of such charges in the Key Fact Statement. These instructions, issued under the Banking Regulation Act, RBI Act, and National Housing Bank Act, will take effect from a date specified in the final circular, repealing previous related directives.
Comments/feedback by the stakeholders and members of the public on the draft circular may be submitted by March 21, 2025.
[Notification No. 2024-2025/2231]
