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RBI should altogether abolish concept of foreclosure charges

Reserve Bank of India in an RTI response dated September 3, 2009 had mentioned that RBI does not approve policy of foreclosure-charges on pre-payment of loans, but keeping short of issuing any directives. But subsequently foreclosure-charges in respect of home-loans were abolished by an RBI directive dated June 5, 2012 but only in respect of banks and not for Non-Banking-Financial-Companies (NBFC). However, NBFCs themselves abolished foreclosure-charges in respect of home-loans due to their competition with banks in loan-business. RBI through its circular dated May 7, 2014 abolished foreclosure-charges for all types of loans given by banks to individuals followed by another circular dated July 14, 2014 abolishing foreclosure charges being charged by NBFCs from individuals also but only on loans with floating rate of interest. Both banks and NBFCs are taking exit-routes by not abolishing foreclosure-charges in case of others even like HUFs and individuals paying Equated Monthly Installment (EMIs) from their proprietorship firms. Instead of doing away with anti-public mahajan-like practice in piece-meal manner, RBI should issue directive to abolish concept of foreclosure-charges altogether for any category of loan-takers and for every type of loan including loans with fixed rates of interest both for banks and NBFCs.

Madhu Agrawal

(The views expressed by the author in the article are his/her own.)

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