The RBI, in its notification onJune 5, with regards to floating rates on home loans has asked all scheduledcommercial banks (excluding RRBs) to remove foreclosure charges/prepaymentpenalty on home loans with immediate effect. This follows an observation by theDamodaran Committee that foreclosure charges levied by banks on prepayment ofhome loans were resented by home loan borrowers across the board. Especiallysince banks were hesitant in passing on the benefits of lower interest rates toexisting borrowers, in a falling interest rate scenario. Goans can now lookforward to a better rate of interest on home loans. However, for banks thismeans a loss of business. But as Eric Tucker, zonal manager Goa and WestMaharashtra Branch Bank of Baroda said, “It is a competitive world, there willbe switchovers and one should be ready.”
Suresh Naik, branch manager,Mapusa Urban Co-operative bank adds, “We used to charge 4 to 5 per centforeclosure charges/prepayment charges penalty on home loans. Foreclosurecharges were seen as a restrictive practice deterring borrowers from switchingover to loans available at a cheaper rate. Therefore, for a housing loan of Rs35 lakhs, the foreclosure charges would amount to Rs 1 lakh. But havingsaid that, we have stopped charging this amount.” he shares.
“With the removal of foreclosurecharges/prepayment penalty on home loans this is expected to lead to reductionin the discrimination between existing and new borrowers and competition amongbanks will result in finer pricing of the floating rate home loans,” said theRBI.
Though many banks have in the recent pastvoluntarily abolished pre-payment penalties on floating rate home loans, thereis a need to ensure uniformity across the banking system. But as another leadingbank manager said, “When a person comes in for a home loan, it is a long term relationship;we do not see much loss of business.”
