Anti-monopoly watchdog CCI today said it is likely to fine banks or ask them stop the practice of imposing penalty on borrowers for prepaying loans.
"We expect that all banks will reply to our notice. (Appropriate) actions will be taken under Section 27 (dealing of with abuse of dominance) of the Competition Commission Act," CCI Director General and Adviser (Law) K K Sharma told PTI.
The Competition Commission of India (CCI) had last month sent show cause notices to at least 15 banks, Indian Banks Association (IBA) and Reserve Bank questioning the rationale of penalising clients who opt to foreclose their loans.
"The investigation on loan prepayment penalty has been completed and the report has been submitted. The Commission will come out with a final verdict soon," Sharma said.
When asked what are the likely actions against banks, Sharma said the commission may impose fine on lenders or even ask them to abolish the system of prepayment penalty.
Banks charge a penalty, usually 2-3 per cent of the remaining credit, from customers if they wish to foreclose their loans. They impose this penalty to discourage borrowers from switching long-maturity loans to other lenders by way of prepayment. Some banks allegedly charge as high as 3-4 per cent, which invited the attention of CCI to the matter.
Recently, IBA, which is the industry body of Indian banks, had said that levying penalty on foreclosures is not a violation of competition law and its removal could multiply the lending risk of banks.