"...It is advised that banks will not be permitted to charge foreclosure charges or pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect," RBI said in a notification.
Floating loan products include housing, corporate, vehicle and personal loans.
In the first bi-monthly monetary policy statement for 2014-15 released last month, the RBI had said banks should consider allowing their borrowers the facility of prepaying floating rate term loans without any penalty in the interest of their customers.
Two years ago, RBI had barred banks from levying foreclosure charges or pre-payment penalties on home loans on floating interest rate basis.
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Yesterday, the RBI asked banks not to levy penalties on customers who don't maintain a minimum balance in any inoperative account, as part of a consumer protection initiative.
The RBI directed banks in 2012 not to charge customers for non-operation or activation of basic savings bank deposit accounts.