RBI Bans Pre-Payment Charges on Floating Rate Loans

  • Blog|News|FEMA & Banking|
  • 2 Min Read
  • By Taxmann
  • |
  • Last Updated on 4 July, 2025

Latest from Taxmann

RBI pre-payment charges ban

Notification No. RBI/2025-26/64 DoR.MCS.REC.38/01.01.001/2025-26, Dated: 02.07.2025

In a bid to foster transparent lending norms and improve access to credit, the Reserve Bank of India (RBI) has issued the (Pre-payment Charges on Loans) Directions, 2025. These directions are aimed particularly at protecting individual borrowers and supporting Micro and Small Enterprises (MSEs) by eliminating unfair charges that could discourage early loan repayment.

1. No Pre-Payment Charges for Individual Borrowers

As per the new Directions, no pre-payment charges shall be levied on loans granted to individuals for non-business purposes, irrespective of whether the loan involves co-borrowers or co-obligants. This change is expected to:

  • Empower individuals to repay their debts ahead of schedule without penalty
  • Enhance borrower autonomy in managing personal finances
  • Encourage responsible borrowing and repayment behavior

2. Restrictions on Lender-Initiated Pre-Payments

In addition to waiving pre-payment penalties for individual borrowers, the RBI has clarified that Regulated Entities (REs) shall not charge any pre-payment fees for amounts repaid at their own instance. This ensures that borrowers are not penalised for pre-payments initiated or enforced by the lender.

3. Applicability of the Directions

The Pre-payment Charges on Loans Directions, 2025 shall come into effect for all loans and advances sanctioned or renewed on or after January 1, 2026. These provisions will apply across all Scheduled Commercial Banks, NBFCs, and other RBI-regulated lending institutions.

4. Advancing Borrower Rights and Credit Inclusion

This regulatory intervention aligns with the RBI’s broader goal of:

  • Promoting fair and inclusive lending practices
  • Supporting credit flow to MSEs, which often face financing constraints
  • Reducing the cost of credit by removing hidden charges

By disallowing punitive pre-payment fees, the RBI aims to enhance borrower confidence and ensure a more transparent and borrower-friendly lending ecosystem.

Click Here To Read The Full Notification

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that’s easy to read and remain consistent across all imprint and digital publications are applied

Leave a Reply

Your email address will not be published. Required fields are marked *

«
»

Everything on Tax and Corporate Laws of India

To subscribe to our weekly newsletter please log in/register on Taxmann.com

Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied