20 April,2012

HOME LOANS- PENALTY FOR PRE PAYMENT 

Nov. 24, 2011 reported as under (vide http://www.thehindubusinessline.com/industry-and-economy/banking/article2656235.ece)

NEW DELHI, NOV 24: 

State Bank of India has decided to abolish the pre-payment charges on home loans, giving some succour to borrowers who want to foreclose their accounts.

“We have decided to do away with the pre-payment charges on all kinds of housing loans with immediate effect,” a senior official of the bank told PTI.

The bank has been charging pre-payment penalties only on housing loans with floating interest rates taken before May 2011, the official said. It has been charging about 2 per cent of the outstanding amount as penalty if borrowers opted to foreclose their loans.

The decision from the largest lender will prompt other lenders to follow the suit.

….

It may be noted that the Reserve Bank has indicated that it would scrap pre-payment penalties charged by banks.

“It is proposed to implement the recommendations of the Damodaran Committee, on which a broad consensus has emerged, as also the action points which were identified by the IBA (Indian Banks’ Association) and BCSBI (Banking Codes and Standards Board of India) in the last Banking Ombudsmen conference,” RBI had said in its mid-year credit policy review.

Housing finance regulator National Housing Bank (NHB) has directed all the housing finance companies to desist from imposing a pre-payment penalty on home loan borrowers last month.

The levy of charge on borrowers for pre-closure of housing loans by housing finance companies has been considered further by the NHB in the light of subsequent developments and it has been decided that hereafter, housing finance companies should not charge a pre-payment levy or a penalty on pre-closure of housing loans, the regulator had said in a notification.

In addition, the NHB has also directed all the housing finance companies to have a uniform and not differential rates of interest for old and new borrowers that have the same credit or risk profile.

Pre-closure charge on housing loans set to go

October 28, 2011

vide http://www.thehindu.com/life-and-style/homes-and-gardens/article2576765.ece

The National Housing Bank has offered some consolation to home-loan customers through its October 19 directive to housing-finance companies that they should not impose a prepayment levy or penalty on pre-closure of housing loans.

Floating-rate loans can be pre-closed through money raised from any source, the directive says.

In the case of loans on fixed rates, the accounts can be closed using money raised by the borrower only from his or her own source — any source other than a loan from a bank, housing-finance company, non-banking finance company, or financial institution.

Some time ago, the RBI issued a directive to banks, as part of efforts to improve customer service, to stop levying pre-closure charges on home loans, though the Indian Banks' Association has argued against the move. The directive, applicable to home loans on floating rates, has brought bankers together against the move.

…..The bank also warned housing financial institutions against offering different floating rates to their old and new customers.

The directive said: “Several representations/complaints have been received by the National Housing Bank against such practice … It is accordingly advised that the HFCs [housing-finance companies] should ensure uniformity in rates on a floating-rate basis charged to their old and new customers with the same risk profile, irrespective of the time of entry of the borrowers in the market.”

The bank observed that charging a higher interest on earlier borrowers in relation to the new customers put the former at a disadvantage and the practice was discriminatory. For the growth of a healthy housing finance system, it was important that pricing of products be transparent and non-discriminatory.