The Reserve Bank of India recently expressed discontent on the practice of the bank of imposing high prepayment penalty on housing loans. In some cases borrowers are levied with prepayment penalty as high as 5 percent. RBI is not at all happy from the banks following such practices.
A senior RBI official said "RBI is clearly not happy with high prepayment charges. But should the regulator put a ban on prepayment charges is still a matter of further discussion.”
However the banks strongly advocate the practice of prepayment penalty as they say that such an act creates gaps in their asset-liability management. The largest lender of the country State Bank of India does not levy any charge on it’s customers on the prepayment of home loan.
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