NEW
DELHI: The Reserve Bank today asked the Regional Rural Banks (RRBs) to
stop charging penalty prepayment of housing loans taken at variable
rates.
"It has therefore decided that the regional rural banks will not be allowed to charge foreclosure fees or prepayment penalties on home loans on floating rate basis, with immediate effect," RBI said in a statement.
Removal of shielding charges / prepayment penalties on mortgages will lead to reduction in discrimination between existing and new borrowers and competition between banks will result in finer pricing of adjustable-rate mortgages, it said in a message addressed to all Regional Rural Banks.
Although many banks have in recent years voluntarily abolished prepayment penalties on adjustable-rate mortgages, there is a need to ensure consistency across the banking system, it added.
Earlier this month, RBI directed all scheduled commercial banks excluding RRBs to desist charging prepayment penalties on variable home loan scheme.
RBI noted that Damodaran Committee had observed that the shielding charged by banks on prepayment of mortgage loans were bad in the home loan borrowers.
This is especially true considering that the banks were considered to be hesitant in passing on the benefits of lower interest rates to existing borrowers in a declining interest rate scenario, it is added.
With the aim of ensuring consistency across the banking system in the home loan segment, had RBI in its annual monetary policy for 2012-13 proposed "not allowing" banks that charge fees.
Last year, agreement was reached on the Banking Ombudsmen conference that banks should not impose prepayment charges on loans with variable interest rates.
Previously, housing finance regulator National Housing Bank (NHB) directed all housing finance companies to refrain from imposing a prepayment penalty.
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"It has therefore decided that the regional rural banks will not be allowed to charge foreclosure fees or prepayment penalties on home loans on floating rate basis, with immediate effect," RBI said in a statement.
Removal of shielding charges / prepayment penalties on mortgages will lead to reduction in discrimination between existing and new borrowers and competition between banks will result in finer pricing of adjustable-rate mortgages, it said in a message addressed to all Regional Rural Banks.
Although many banks have in recent years voluntarily abolished prepayment penalties on adjustable-rate mortgages, there is a need to ensure consistency across the banking system, it added.
Earlier this month, RBI directed all scheduled commercial banks excluding RRBs to desist charging prepayment penalties on variable home loan scheme.
RBI noted that Damodaran Committee had observed that the shielding charged by banks on prepayment of mortgage loans were bad in the home loan borrowers.
This is especially true considering that the banks were considered to be hesitant in passing on the benefits of lower interest rates to existing borrowers in a declining interest rate scenario, it is added.
With the aim of ensuring consistency across the banking system in the home loan segment, had RBI in its annual monetary policy for 2012-13 proposed "not allowing" banks that charge fees.
Last year, agreement was reached on the Banking Ombudsmen conference that banks should not impose prepayment charges on loans with variable interest rates.
Previously, housing finance regulator National Housing Bank (NHB) directed all housing finance companies to refrain from imposing a prepayment penalty.
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