The Competition Commission of India (CCI) has directed that prepayment penalty charged by banks on home loans is very much within the competition laws.

The ruling by CCI comes in response to the complaint filed by a borrower, Mr Neeraj Malhotra against Deutsche Post Bank Home Finance Ltd for charging him with prepayment fees. The bench of four members of CCI said that the levy of charge by the bank was in no case violating Section 3 and 4 which relate to anti competitive practices and use of dominant position.

Two members of the bench however said that levying charge of this nature should be discontinued by banks, the order released on CCI website read.

Prepayment penalty currently ranges in between 1-2% for most banks. Using this charge banks aim to recover the losses in terms of interest occuring due to preclosure of loan.

However there are some lenders who charge this fee only in case the customer opts for refinancing his home loan amount by switching to another lender offering lower interest rates.