Banks levy charges on premature repayment
By Neelima Shankar
Sep 23, 2009
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Although the reserve bank does not approve of prepayment charges levied by the banks, in a reply to a query filed under the right to information act (RTI), the apex bank said "In the context of granting greater functional autonomy to banks, operational freedom has been given to scheduled commercial banks on all matters pertaining to banking transactions, including foreclosure of loans."

The applicant asked the bank whether it was aware of the penalties charged by various banks in case of an early repayment of loans. Subhash Chandra Aggarwal, an RTI activist also questioned RBI about the steps being taken to ensure that uniform rates were charged by the banks.

These charges put those customers on disadvantage who want to pay off a loan or move to the one with better terms.

In context of the credit card operations, RBI has suggested the banks to formulate a well documented policy and a fair practice code that would charge interest depending upon the default history of the card holders.

RBI's CPIO said that there should be transparency in charging of such differential rates of interest from the holders. The bank should inform the holder about the methodology of calculation of finance charges with the aid of examples, especially where a part of the amount outstanding is paid by the customer.

RBI said that to ensure transparency the banks should use only external or market- based rupee benchmark interest rates in valuing their floating rate loans.


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