- Reserve Bank of India vide notification dated July 02, 2025, has issued Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025.
- These Directions shall apply to all commercial banks (excluding payments banks), cooperative banks, NBFCs and All India Financial Institutions.
- Regulated Entities (REs) are directed not to levy pre-payment charges on all floating rate loans extended to individuals for non-business purposes, as well as on loans granted to individuals and Micro and Small Enterprises (MSEs) for business purposes under specific institutional categories—without regard to co-obligants, source of prepayment funds, or lock-in periods. These provisions apply if the loan is on a floating rate at the time of pre-payment. For dual or special rate loans, exemption from pre-payment charges depends on whether the loan is in its floating phase during pre-payment. In cases outside these specified categories, pre-payment charges may be levied based on the RE's policy—specifically, calculated on the prepaid amount for term loans, or capped at the sanctioned limit for cash credit or overdraft facilities when closed before maturity.
- In case of cash credit/ overdraft facilities, no pre-payment charges shall be applicable if the borrower intimates the RE of his/ her/ its intention not to renew the facility before the period as stipulated in the loan agreement, provided that the facility gets closed on the due date.
- An RE shall not levy any charges where pre-payment is effected at the instance of the RE.
- The notification is attached herein.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
