The Reserve Bank of India (RBI) has released a draft circular inviting comments from stakeholders and the public on its proposed guidelines regarding the levy of foreclosure charges and pre-payment penalties on loans. This follows the announcement made in the Statement on Developmental and Regulatory Policies dated October 9, 2024. Feedback can be submitted until March 21, 2025, and the final circular will be issued after considering the comments received.
Key Highlights of the Draft Circular:
Prohibition of Foreclosure Charges on Certain Loans:
Regulated Entities (REs) shall not levy foreclosure charges or pre-payment penalties on floating rate loans granted to individuals (with or without co-obligants) for purposes other than business.
Loans to Micro and Small Enterprises (MSEs):
Foreclosure charges or pre-payment penalties shall not be levied on floating rate loans granted to MSE borrowers, up to an aggregate sanctioned limit of ₹7.50 crore per borrower.
This provision applies to all REs except Tier 1 and Tier 2 Primary (Urban) Co-operative Banks and Base Layer NBFCs.
Applicability of Revised Guidelines:
The revised regulations apply irrespective of the source of funds used for foreclosure/pre-payment (whether partial or full).
For loans with a dual/special rate (fixed and floating), the rules depend on the loan type at the time of foreclosure/pre-payment.
Transparency and Fair Lending Practices:
REs must ensure clear disclosure regarding the applicability of foreclosure charges/pre-payment penalties in the Key Fact Statement (KFS) provided to borrowers.
No foreclosure charges or pre-payment penalties shall be levied retrospectively or if not disclosed in advance.
REs cannot impose a minimum lock-in period for foreclosure or pre-payment of loans.
No charges shall be imposed where foreclosure or pre-payment is initiated by the RE itself.
Regulatory Compliance:
These instructions are issued under the Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934, and the National Housing Bank Act, 1987.
The circular will replace previous RBI directions on foreclosure charges, as listed in the annexure.
Next Steps:
The revised regulations will be applicable to eligible loans foreclosed after the effective date specified in the final circular. RBI invites stakeholders and the public to submit their comments before March 21, 2025. The final circular will be issued considering the feedback received to ensure uniformity in foreclosure practices and to promote responsible lending conduct.
Subscribers can access the Case, including Case Analysis, Ratio Decidendi, Headnotes, Briefs, Case Research, Cited Case Laws, Case Law Cross-references, and the latest updates on Statutes, Notifications, Circulars, Guidelines, Press Releases and more.
Click on the following Citation/Link to access these resources:
Commenti