No Penalty on Prepayment of Floating Rate Home Loans
Reserve Bank of India (RBI) said floating rate home loans will be spared penal charges in case of prepayments. Besides the decision on home loans, the action points include measures to protect customer interest in unauthorized ATM transactions, and a policy for compensation to customers for mental harassment.
The regulator for housing finance companies like HDFC and LIC Housing Finance – the National Housing Bank — has already directed lenders not to impose prepayment charges. Market leader State Bank of India’s chairman Pratip Chaudhuri upon taking charge had said that the bank would not charge for any form of prepayment.
Banks may also offer long-term fixed rate housing loans to their customers and address their asset liability mismatch (ALM) issues by recourse to the Interest Rate Swaps (IRS) market. Floating rate loans pass on the interest rate risk from banks which are much better placed to manage it to borrowers and, thus, banks only substitute interest rate risk with potential credit risk.
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