Key Highlights:
- No pre-payment charges on floating-rate business loans for individuals and MSEs.
- Rule applies from January 1, 2026, to new and renewed loans.
- Applies to various banks and NBFCs, with certain exceptions and limits.
Mumbai: The Reserve Bank of India (RBI) has issued new directions to banks and other lenders. These rules say that no pre-payment charges should be taken on business loans given to individuals and micro and small enterprises (MSEs).
These new rules will come into effect from January 1, 2026, and will apply to all loans and advances that are sanctioned or renewed on or after this date.
Why This Change?
Earlier, RBI had already banned pre-payment charges on floating rate loans taken by individuals for non-business purposes. But during reviews, RBI found that many banks and lenders were still charging fees for early payment of business loans to MSEs.
This led to customer complaints and confusion. So, the RBI decided to issue fresh guidelines after studying feedback from the public.
What Do the New Rules Say?
According to the RBI Pre-payment Charges on Loans Directions, 2025:
No pre-payment charges can be levied on floating rate business loans to individuals and MSEs, with or without co-applicants.
The rule applies to commercial banks (except small finance banks, RRBs, and local area banks), Tier 4 urban co-op banks, NBFCs-UL, and All India Financial Institutions.
For loans not for business taken by individuals, the no-charge rule continues as before.
For small banks and NBFCs-ML, no pre-payment charges can be levied on loans up to Rs 50 lakh.
Also, no charges will be allowed, even if the loan is paid early from outside funds. There is no lock-in period, and borrowers can prepay part or full anytime.
Special Rule for Overdrafts
If a borrower informs the bank in advance that they don’t want to renew a cash credit or overdraft facility, and they close it on time, then no pre-payment fee will apply.
(With PTI Inputs)
