Prepayment Penalty charged by banks

Stop prepayment charges - RBI to banks
Monday,28 September 2009, 16:24 hrs

Bangalore: The Reserve Bank of India has shown its disapproval on the prepayment charges levied by the banks and has instructed the banks to stop such practices. These charges hinder a customer to pay off his loan and move to another with better terms.

As per a customer most of the people who avail loans fear paying this extra two percent bank service charge. Even SBI has started levying this charge, reports Rupee Times. The inconvenience faced by the customers came to the RBI's notice while responding to a query on the levied charges under the Right to Information Act. The bank has also notified that it has received many such complaints earlier.

By levying such penalty charges, banks want to retain their customers who want to avail a loan with better terms and conditions. "By doing so, banks are limiting their customers' options. Instead they should try to retain them by offering them competitive rates. Doing away with the prepayment charges will help in attracting more customers for the banks," RBI said.

Earlier the banks were questioned on the same prepayment charges issue by groups like National Consumer Disputes Redressal Commission have already questioned banks on this issue, yet the banks have failed to come up with a proposal with standard rates.

I am happy that the RBI has pulled up the banks for the prepayment charges.
About 6 months ago, when my son had wanted to prepay his loan, the ICICI Bank charged him about Rs 3500/- as prepayment charges.
In this matter, I feel that ICICI Bank is the worst culprit.
When they issue the loans, their agents say one thing and then later on they do something else.
There is no justification for charging the prepayment charges as they are getting their money back ahead of schedule and yet they merrily went on penalising their customers.
The RBI should instruct the banks to refund all the prepayment charges they have collected from their customers in the last three years.