Waiving prepayment penalty on home loans not healthy: Banks
By Joseph Samson
Sep 30, 2011
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Regulator Reserve Bank of India's advice on waiver of prepayment penalty in case of floating rate home loans does not seem to be completely acceptable by banks.

Banks do not deny the fact that customer ties and relations should be enhanced but at the same time feel that prepayment penalty should not be waived in totality though it should be levied in reasonable rates.

The Indian Banks' Association (IBA) has put in their stand in front of RBI saying that complete waiver of prepayment penalty would bring in liquidity mismatches in their books due to early repayment of loans by borrowers.

"Any prepayment by a customer leads to maturity mismatches, which impacts banks' liquidity," a senior IBA official said.

"When prepayment happens, there is a time gap before the bank can redeploy the funds. Therefore, we have said that prepayment penalty should stay in the industry, but at a reasonable level," he added.

Presently nearly 95% of the total home loan portfolio of banks comprises of floating rate home loans, says RBI.


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