RBI new directions for prepayment charges by banks on floating rate loan & advances

RBI lays down revised rules for bank prepayment charges on all floating rate loan & advances sanctioned or renewed on or after January 1, 2026. 

Reserve Bank of India has issued RBI (Pre-payment Charges on Loans) Directions, 2025. These Directions shall apply to all commercial banks (excluding payments banks), co-operative banks, NBFCs and All India Financial Institutions.

All banks shall adhere to the following Directions regarding levy of pre-payment charges on all floating rate loans and advances:

(i)  For all loans granted for purposes other than business to individuals, with or without co-obligant(s), Banks/Financial Institution shall not levy pre-payment charges;

(ii) For all loans granted for business purpose to individuals and MSEs, with or without co-obligant(s):

(a) A commercial bank (excluding Small Finance bank, Regional Rural bank and Local Area bank), a Tier 4 Primary (Urban) Co-operative bank, an NBFC-UL, and an AllIndia Financial Institution shall not levy any pre-payment charges.

(b) A Small Finance bank, a Regional Rural bank, a Tier 3 Primary (Urban) Co-operative bank, State Cooperative bank, Central Cooperative bank and an NBFC-ML shall not levy any pre-payment charges on loans with sanctioned amount/ limit up to ₹50 lakh.

(iii) The Directions at (i) and (ii) above shall be applicable irrespective of the source of funds used for pre-payment of loans, either in part or in full, and without any minimum lock-in period.

(iv) Applicability of above Directions for dual/ special rate (combination of fixed and floating rate) loans will depend on whether the loan is on floating rate at the time of pre-payment.

It has bene further provided that in cases other than (i) and (ii) above, pre-payment charges, if any, shall be as per the approved policy of the Banks/Financial Institution. However, in case of term loans, pre-payment charges, if levied shall be based on the amount being prepaid. In case of cash credit/ overdraft facilities, pre-payment charges on closure of the facility before the due date shall be levied on an amount not exceeding the sanctioned limit.

In case of cash credit/ overdraft facilities, no pre-payment charges shall be applicable if the borrower intimates the Bank/Financial Institution of his/ her/ its intention not to renew the facility before the period as stipulated in the loan agreement, provided that the facility gets closed on the due date.

Banks/Financial Institution shall not levy any charges where pre-payment is effected at the instance of the Banks/Financial Institution.

The applicability or otherwise of pre-payment charges shall be clearly disclosed in the sanction letter and loan agreement. Further, in case of loans and advances where Key Facts Statement (KFS) is to be provided as specified by RBI, the same shall also be mentioned in the KFS. No pre-payment charges which have not been disclosed as specified herein shall be charged by an RE.

Bank/Financial Institutions shall not levy any charges/ fees retrospectively at the time of pre-payment of loans, which were waived off earlier by them.

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