The suggestion of Reserve Bank of India (RBI) about scrapping the prepayment penalty is now being taken seriously by the banks. This time it is Bank of India, a public sector lender which has scrapped prepayment penalty and is applicable with immediate effect.

The leading lenders in the country, State Bank of India and ICICI bank were the first ones to make a move in this direction. Where SBI scrapped the penalty from both fixed as well as floating rate home loan scheme, ICICI Bank only withdrew it from the floating rate home loan schemes.

Bank of India is only the second bank which has withdrawn the prepayment penalty from both fixed as well as floating rate schemes.

An official from Bank of India said, "We have decided to implement the Damodaran committee recommendation on customer service. Accordingly, we have decided to give total liberty to our home loan 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 another lender."

With market leaders accepting the advice of RBI about the abolition of prepayment penalty, more banks are expected to introduce it as RBI has still not made it mandatory for the lenders.