The Reserve Bank of India (RBI) has clarified that non-banking finance companies (NBFCs) shall not impose foreclosure charges/pre-payment penalties on any floating rate term loans sanctioned for purposes other than business to individual borrowers, with or without co-obligants.
Foreclosure charges are part of the fee income for any lender and adds to its bottom-line. It further stated that the relevant rules governing the same have been updated to reflect the change.
These direction covers both deposit-taking and non-deposit-taking NBFCs which are considered systemically important ones. The RBI, in May 2014, had barred commercial banks from charging such fees or penalties from individual borrowers with mortgage loans. But banks are free to charge same on non-secured loans like personal loans.