Stop prepayment charges - RBI to banks

By SiliconIndia   |   Monday, September 28, 2009   |    16 Comments
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Bangalore: The Reserve Bank of India has shown its disapproval on the prepayment charges levied by the banks and has instructed the banks to stop such practices. These charges hinder a customer to pay off his loan and move to another with better terms. As per a customer most of the people who avail loans fear paying this extra two percent bank service charge. Even SBI has started levying this charge, reports Rupee Times. The inconvenience faced by the customers came to the RBI's notice while responding to a query on the levied charges under the Right to Information Act. The bank has also notified that it has received many such complaints earlier. By levying such penalty charges, banks want to retain their customers who want to avail a loan with better terms and conditions. "By doing so, banks are limiting their customers' options. Instead they should try to retain them by offering them competitive rates. Doing away with the prepayment charges will help in attracting more customers for the banks," RBI said. Earlier the banks were questioned on the same prepayment charges issue by groups like National Consumer Disputes Redressal Commission have already questioned banks on this issue, yet the banks have failed to come up with a proposal with standard rates.
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Reader's comments(16)
Posted by:AMIT BHACHAN SHAH - 23 Nov, 2009
2: I have a personal loan with an MNC bank. I called them to prepay my loan, but they simply refused to waive off their prepay penalty of 5%. I dont know.. now what to do ?
Keep me informed.
Posted by:Hitesh Wadhwa - 22 Oct, 2009
3: I feel The RBI itself is acting like Eunuchs. It has made Many many customer friendly rules BUT Has NO GUTS to implement them. The Banks specially HDFC Bank have Blatantly Trampleed upon RBI Circulars & RBI as well as Banking Ombudsman are Happy Questioning and asking Further Details from customers BUT they are Scared Shit to even ask an explanation from HDFC Bank. IS RBI ITSELF ON DOAL?
Posted by:Amit - 01 Oct, 2009
4: When is this gonna be implemented? I mean has RBI authorities issued notice to banks for no charges on pre-payment of loan?
I am just going to make prepayment of my loan. this week only. Can anyone share from where the exact information can be derieved
Posted by:Dewang - 29 Sep, 2009
5: RBI must make sure that Banks actually implement them ...
Posted by:Anoop - 29 Sep, 2009
6: These private banks, especially ICICI are a bunch of crooks. When they offer you the loan, their agents say one thing and when you start paying them, they start charging you hidden charges.
They penalize you if you are late in your payment and they penalize you if you prepay them. They have butter on both sides of the bread.
It is good that at last the RBI has opened its eyes to this daylight robbery which the banks are doing.
The RBI should not only stop all future prepayment charges but should also instruct the banks to refund all these charges which they have collected from customers in the last three years.
PSU banks at least help the poor under pressure from the government in granting loans but the private banks do no such thing.
All private sector banks who have collected penal interest for prepayment should be forced to refund the same.
Posted by:Radheshyam Sharma - 29 Sep, 2009
I am eye to eye with Sharma what ever he said in details.

RBI should take strong steps to sto this monopoly of this natinlise private bank
Nripa Replied to: Radheshyam Sharma - 30 Sep, 2009
Right Said..
Deepak Singla Replied to: Radheshyam Sharma - 29 Sep, 2009
9: This is very good step taken by the RBI. By this the customer will not get abuse by the banker & also help the customer to plan the correct manner. The customers are disturbed by this hiding charges.
Posted by:Shah BH - 29 Sep, 2009
10: I have come across a situation wherein ICICI charged me 1.93% as pre-payment charge for converting to lower floating interest with themselves.

I hope the RBI move helps customer like me.
Posted by:Anil - 28 Sep, 2009
11: This is good initiation by RBI. Please force the banks to do this. With this banks may benifit interms of defaulters
Posted by:Venkat - 28 Sep, 2009
12: It is high time for more reforms in the Banking sector. Must do away with Flat rates and come out with interest on diminishing balances. Why should any one pay interest on the loan amount already repaid?
Posted by:Adit - 28 Sep, 2009
13: RBI has taken a very good decesion. As it is people are paying a huge interest amount from the 1st EMI and the banks are collecting their interest first and slowly slowly the principal amount wheras from the first EMI itself the principal and interest amount can be kept almost same.
On th one hand they are asking for high interest on loan whereas giving less interest on FD's in the proportion of interest on loan. This also need to be taken care of as after retirement the senior citizens are getting less interest on thir deosits
Posted by:Vrushali Milind Ghag - 28 Sep, 2009
14: kudos to RBI...
Posted by:Bhasker - 28 Sep, 2009
15: Thanks a lot RBI...
Posted by:simk - 28 Sep, 2009
Looks like Govt is indeed working for it's people... :) Great job RBI
Manasvini Replied to: simk - 28 Sep, 2009
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