Bank of India abolished penalty on pre-closure of Fixed and Floating Rate Loans
The Bank of India (BoI) said that it has abolished pre-payment charges on both fixed and floating rate home loans, with immediate effective.
"We have decided to implement the Damodaran committee recommendation on customer service. Accordingly, we have decided to give total liberty to our home laond customers, both on floating rates as well on fixed rates to switch if they choose to do so irrespective of the source of funds, including takeover by anotherlender," a BoI official told PTI. Before this, BoI, which has a home loan book of worth Rs15,000 crore, used to charge 2.5% penalty on the outstanding amount in case of pre-payment. The country's largest lender, State Bank (SBI), and the private sector bank ICICI Bank, had on November 25 abolished pre-payment penalty on home loans. While the SBI had done away with pre-payment charges for loans on fixed and floating interest rates irrespective of source of funds, ICICI Bank will continue to charge 2% on the outstanding amount of fixed-interest loans. Earlier this week, another state-run lender Central Bank of India too had waived pre-payment charges on its fixed rate home loans.
The Reserve Bank of India on October 25 had indicated that it was planning to scrap prepayment charges altogether saying in such a product the customer is taking the complete risks. However, banks are allowed to charge appropriate pre-payment penalties in the case of fixed rate loans. Within a few days, the National Housing Bank had asked mortgage players to abolish the charges through a circular. But RBI is yet to issue a circular on this. Normally an RBI directive/advice becomes mandatory only after a circular.
Best Regards
Prakash Nair
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