RBI issues new rules to curb prepayment charges on loans
What's the story
The Reserve Bank of India (RBI) has announced a new set of guidelines regarding the imposition of prepayment charges on floating rate loans and advances. The move is aimed at easing the burden on customers who often find themselves frustrated with such charges. The guidelines will come into effect from January 1, 2026, and are part of the RBI (pre-payment charges on loans) Directions 2025.
Scope
Guidelines applicable to all commercial banks, cooperative banks, NBFCs
The new guidelines will apply to all commercial banks (except payment banks), cooperative banks, and non-banking financial companies (NBFCs). They are aimed at regulating the levy of prepayment charges on floating rate loans and advances. The RBI has also clarified that there will be no prepayment charges for loans given for non-business purposes to individuals.
Exceptions
No prepayment charges for certain business loans
The RBI's guidelines also state that no prepayment charge will be levied on business loans given by commercial banks, tier-4 primary (urban) cooperative banks, NBFC-UL (upper layer), and all-India financial institutions. The same applies to small finance banks and regional rural banks for loans with a sanctioned amount/limit of up to ₹50 lakh.
Policy
Charges for cases not falling under specified categories
For cases not falling under the aforementioned categories, prepayment charges will be as per the approved policy of the regulated entity (RE). In case of term loans, if levied by the RE, prepayment charges will be based on the amount being prepaid. For cash credit/overdraft facilities, these charges can only be levied on an amount that does not exceed the sanctioned limit.