Banking · RBI Regulations & Loan Foreclosure
An individual retail borrower with a floating-rate home loan wants to prepay the entire outstanding balance. According to RBI guidelines, what is the regulatory position on foreclosure charges?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Penalty can be charged if the borrower prepays through personal savings rather than refinancing through another bank.
- 2Prepayment penalties are banned only for loan amounts up to ₹25 lakh.
- 3Banks are strictly prohibited from levying foreclosure charges or prepayment penalties on floating-rate term loans granted to individual borrowers.✓
- 4The bank can charge a penalty if it was explicitly mentioned in the initial agreement.
Correct answer
Banks are strictly prohibited from levying foreclosure charges or prepayment penalties on floating-rate term loans granted to individual borrowers.
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