RBI barred Banks from charging Prepayment Penalty on Floating Rate Home Loans

The Reserve Bank of India (RBI) on 17 April 2012 banned banks from charging a prepayment penalty on floating rate home loans. Banks were barred from charging any fee from a customer who wants to repay an outstanding loan and close the account.
Housing finance regulator National Housing Bank (NHB) had previously barred home finance companies from charging any prepayment penalty. Among banks, State Bank of India was the first to do away with the pre-payment fee on both fixed and floating rate loans. Taking cue nearly 20 banks withdrew the penalty on floating rate loans. However, most lenders continue to charge the penalty on premature closure of fixed rate loans.

RBI also directed banks to minimise the wide variation in rates offered to retail and bulk depositors on deposits with very little difference in maturities. It also mandated that banks offer a basic savings and deposit account to all their customers. These accounts should have some minimum common facilities and not prescribe a minimum balance.

Basic banking linked only to no-frills accounts will now be made available to customers, rich or poor. Banks were directed to frame a policy on unclaimed deposits, a grievance redressal mechanism to resolve complaints quickly, record-keeping and review of such accounts regularly.

RBI also asked banks to allot a unique customer identification code to all their customers availing of different products from a bank. It said that for new customers the unique number could be provided as soon as they entered the new relation while the process for existing customers should be completed by end-April 2013.