RBI New Circular on Pre-payment Charges on Loans 2025

 

A new circular on loan prepayment fees was issued by the Reserve Bank of India (RBI). If borrowers want to pay off their loans before the payback period, several Indian banks demand pre-payment fees. For instance, there will be pre-payment penalties if you take out a five-year auto loan and decide to pay it off in four.

In accordance with the October 9, 2024, Statement on Developmental and Regulatory Policies, a draft circular was released for public comment on February 21, 2025. The RBI has issued the updated circular after reviewing the supervisory findings and public comments on the draft circular.

All loans and advances approved or renewed on or after January 1, 2026, are subject to these directives. All commercial banks (with the exception of payments banks), cooperative banks, NBFCs, and All India Financial Institutions are subject to these directives.

Banks shall follow below Directions regarding levy of pre-payment charges

An RE is not allowed to collect pre-payment fees for any loans made to individuals, with or without co-obligants, for purposes other than business;

Regarding all business loans given to individuals and MSEs, whether or not there are co-obligants:

(a) No pre-payment fee shall be charged by a commercial bank (with the exception of Small Finance, Regional Rural, and Local Area banks), a Tier 4 Primary (Urban) Co-operative bank, an NBFC-UL, or an All India Financial Institution.

(b) No pre-payment fee may be assessed by a Small Finance bank, Regional Rural bank, Tier 3 Primary (Urban) Co-operative bank, State Cooperative bank, Central Cooperative bank, or NBFC-ML on loans up to Rs.50 lakh in sanctioned income.

But when it comes to term loans, any pre-payment fees that the RE may impose would depend on how much is being paid back.  Prepayment costs on cash credit/overdraft facilities that are closed before the due date will be assessed on an amount that does not exceed the authorized limit.

 As long as the facility is closed on the due date, there won't be any pre-payment fees for cash credit or overdraft facilities if the borrower notifies the bank that they intend not to renew the facility before the time frame specified in the loan agreement. Prepayment made at the bank's request will not result in any fees from the bank.

The loan agreement and sanction letter must explicitly state whether or not pre-payment charges are applicable. Additionally, if a Key Facts Statement (KFS) is required for loans and advances as outlined in the Reserve Bank's April 15, 2024, circular on "Key Facts Statement for Loans and Advances," it must also be included in the KFS. An RE is not permitted to collect pre-payment fees that have not been disclosed as outlined here.

When debts that the bank previously waived are repaid in full, the bank will not impose any fees or charges retroactively.

Download RBI Circular PDF

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How much did your bank collect charges on non-maintenance of minimum balance?

If you do not maintain a minimum balance in your regular savings bank account, chances are your bank penalises you for non-maintenance of the average monthly balance.

In 2017-18, public sector banks and leading private sector banks together collected close to Rs. 5,000 crore (Rs. 4,989.55 crore) from customers who did not maintain minimum balance in their accounts, according to the numbers presented by the government in Lok Sabha last month in response to a question on charges levied by banks on customers.

The Reserve Bank of India (RBI) allows banks to fix reasonable charges on services provided. However, there are a set of accounts that cannot be charged with a penalty for non-maintenance of minimum balance. The Jan Dhan Yojana accounts and basic savings bank deposit accounts, also called no-frills accounts, are exempt from minimum balance requirements. Many banks also exempt salary accounts from maintaining a minimum balance.

How is average monthly balance calculated?

Different banks have different minimum balance requirements and penalties. Let’s take the example of State Bank of India, the largest bank in the country. In metro cities, the minimum balance you need to maintain in your SBI account is Rs. 3,000; it is Rs. 2,000 in semi-urban branches; and Rs. 1,000 in rural branches. The amount of penalty is decided on the amount that falls short of the minimum balance requirement for the particular category of account.

Average minimum balance is calculated by taking into account the balance maintained in an account on all the days of the month. Let’s take an account in a metro city in a 31-day month in SBI. If it had Rs. 5,000 for 10 days, Rs. 3,000 for 10 days, and Rs. 2,000 for 11 days; the average monthly balance would be: [(5,000x10)+(3,000x10)+(2,000x11)]/31 = Rs. 3,290. So, no penalty would be imposed in this case.

If the balance in the last 11 days was Rs. 1,000, the average minimum balance would have been Rs. 2,935 and Rs. 10 (plus taxes) would be charged for that month, as the shortfall was less than 50% of the balance requirement. If the shortfall is between 50% and 75% of the average minimum balance needed, the charge would be Rs. 12 and if the shortfall is over 75%, it is Rs. 15.

The charges are between Rs. 7.5 and Rs. 15 for semi-urban branches and Rs. 5-10 for rural branches. SBI had brought back this requirement for its savings accounts in April 2017, after a gap of six years.

Many banks, including SBI and ICICI Bank also let you check your average monthly balance through their Netbanking interface.

Source- Livemint

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New Bank Charges to be applied from 20th January 2017

The charges will be applicable from 20 Jan 2018. All charges reflected without GST. Auto Debit charges will be automatically debited with GST. We have to add GST along with charges which required to debit manually.

(1) Cash withdrawal.

(a) Cash withdrawal upto maximum Rs. 50,000/- allowed only to account holder by self-cheque. Charges is Rs. 10/- per transaction (Auto Debit).

(b) Cash withdrawal upto maximum Rs. 10,000/- allowed to 3rd party holder by cheque. Charges is Rs. 10/- per transaction (Auto Debit).

(2) Cash Deposit – Cash deposit of maximum Rs. 2 lakhs per day in CD / CC / OD and any amount in SB account.

Charges –

(a) For SB account upto Rs. 50,000/- per day free. For amount in excess of Rs. 50,000/-, Rs 2.50 per thousand or part thereof. Minimum Rs. 50/-.

(b) For CA / CC / OD / Other accounts upto Rs. 25,000/- per day free. For amount in excess of Rs. 25,000/-, Rs. 2.50/-per thousand or part thereof. Minimum Rs. 50/-.

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