NBFCs should not impose loan foreclosure penalties: RBI to NBFCs

In a recent move, RBI has barred non-banking finance companies from imposing penalties on prepayment or foreclosure charges from individual borrowers.

“NBFCs shall not charge foreclosure charges/pre- payment penalties on any floating rate term loans sanctioned for purposes other than business to individual borrowers, with or without coobligants,” RBI said in a notification, without specifying from when the new rules will be effective.

The RBI has also said the relevant rules governing the same have been updated to reflect the change. Foreclosure charges are part of the fee income for any lender and add to its bottom line. Both deposit-taking and non- deposit-taking NBFCs that are considered systemically important ones are covered under these directions. Earlier in 2014, the RBI had barred commercial banks from charging penalties from individual borrowers with mortgage loans. But banks are free to charge same on non-secured loans like personal loans.