RBI bans NBFCs from charging loan foreclosure penalties

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  • Foreclosure charges are part of the fee income for any lender and add to its bottom line
  • The notification, which will take away an income line for these players, comes at a time when NBFCs are struggling with a host of issues, starting with a liquidity crisis

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RBI | NBFC

Mumbai: The Reserve Bank on Friday barred non-banking finance companies from charging prepayment penalties or foreclosure charges from individual borrowers.

“NBFCs shall not charge 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,” the central bank said in a notification, without specifying from when the new rules will be effective.

The central bank said the relevant rules governing the same have been updated to reflect the change.

Foreclosure charges are part of the fee income for any lender and add to its bottom line.

These direction covers both deposit-taking and non- deposit-taking NBFCs which are considered systemically important ones.

It can be noted that in May 2014, the RBI had barred commercial banks from charging such fees or penalties from individual borrowers with mortgage loans. But banks are free to charge the same on non-secured loans like personal loans.

The notification, which will take away an income line for these players, comes at a time when NBFCs are struggling with a host of issues, starting with a liquidity crisis. The regulator has blamed asset-liability mismatch for the troubles.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

Courtesy: livemint