It has been directed by government to all public sector banks (PSBs) that they should stop charging prepayment penalty to customers who wish to preclose their home loans. Presently banks levy penalty upto 2% of the outstanding loan amount in case of preclosure.

The finance ministry has recently addressed the PSBs and Indian Banking Association (IBA) saying that penalty should not be put on borrower if he chooses to repay early using his own funds.

According to bankers and government officials, many PSBs have already adopted this measure. The largest lender of the country, State Bank of India does not levy any charges of the kind.

Similar stance has been adopted by other public sector lenders.