New Delhi: RBI has clarified that it does not approve of individual banks’ policies regarding charging penalty/foreclosure charges on pre-payment of loans. However, banks are free to levy such charges with proper safeguards. In a report on September 22, TOI had said that RBI does not approve of banks levying foreclosure charges. Responding to the report, the RBI has clarified that this is not the correct interpretation. According to RBI, while banks have the freedom to levy service charges on all matters pertaining to banking transactions, including pre-payment/ foreclosure of loans, banks are required to ensure transparency in displaying information regarding such charges. RBI said it is expected that freedom given to banks will foster healthy competition amongst banks to keep service charges at reasonable levels, which would ultimately benefit customers. It said, banks generally levy charges for foreclosure of loans as it adversely impacts their asset-liability management. ‘‘In terms of extant guidelines issued by RBI, in the context of gaining greater functional autonomy to banks, operational freedom has been given to scheduled commercial banks on all matters pertaining to banks transaction,” RBI said.
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