The Reserve Bank of India (RBI) does not propose to restrict foreclosure charges charged by the Non-Banking Financial Companies (NBFCs) on pre-payment of loans to a maximum of three percent at present. RBI has issued a circular dated 14th July, 2014 to all Non-Banking Financial Companies/Residuary Non-Banking Companies with regard to levy of foreclosure charges/pre-payment penalty on Floating Rate Loans, as a measure of customer protection and also in order to bring in uniformity with regard to pre-payment of various loans by borrowers of banks and NBFCs, stipulating that NBFCs shall not charge foreclosure charges/prepayment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect. The RBI has not received any such data till date regarding NBFCs non-compliance of the directions issued recently on 14.7.2014 on levy of foreclosure charges/pre-payment penalty on floating rate loans.

This information was given by the Minister of State for Finance, Smt. Nirmala Sitharaman in written reply to a question in Lok Sabha today.

Foreclosure charges prohibition on floating-rate individual term loans now required, aligning NBFC practice with customer protection. The Reserve Bank of India directed on 14 July 2014 that Non-Banking Financial Companies shall not levy foreclosure charges or prepayment penalties on floating-rate term loans to individual borrowers, effective immediately, as a customer-protection and harmonisation measure; the RBI further stated it has not received data showing NBFC non-compliance with these directions.