Loan Foreclosures - RBI doesn't know what to do

RBI opposes penalty on loan prepayment, but takes no action
By IANS

New Delhi: The Reserve Bank of India (RBI) does not approve of penalties on foreclosure of loans and admits there is no uniformity among banks on such matters, but appears to have done little to address the problem.

This is reflected in two separate sets of replies to a query under the Right to Information (RTI) Act on the issue of high rates of penalties charged on the prepayment of loans, in a practice followed by private, foreign and state-run banks alike.

"RBI does not approve the policy of charging penalty/fore closure charges," the central bank said in a reply to a query raised by RTI activist Subhash Chandra Agrawal, a resident of Chandni Chowk in the capital's old quarters.

The central bank goes on to add that guidelines have also been issued to commercial banks to ensure usurious interest, including processing and other charges, is not levied on loans and advances.

But in another set of reply, the central bank admits such penalties are, indeed, levied - even by state-run banks.

"Banks, including public sector banks, generally levy prepayment charges on loans as prepayment of loans affect their asset-liability management," says the RBI's reply.

"There is no uniformity in the practice followed by various banks as the banks have been given freedom to fix service charges for various types of services rendered by them."

The replies have left the applicant Agarwal rather clueless.

"While RBI has revealed that it does not approve penalty/fore-closure charges on pre-payment of loans, yet on the other hand it has admitted such a faulty practice prevailing in the banks," he said.

"If RBI does not approve the policy, it should immediately direct banks not to levy any such fore-closure charges," he added.


Are we living in a civilized country with a powerful Central Bank which is impotent?
The RBI should not prevaricate.
Either they accept loan foreclosures are legal and they allow the banks to merrily continue charging penalties which vary with the whims of the banks
or
they state that loan foreclosures are illegal and issue circulars to all banks stating the same and the penalty which would be imposed on banks if they charge any penalty from borrowers for foreclosing their accounts. This notice should be published in all newspapers and people should send in their complaints if penalties have been charged.
Presently, the RBI is hunting with the hounds and running with the hares.
It does not speak very highly of our central bank.
My son was charged penal interest for prepayment of loan by ICICI Bank.
I had reported the same on our blog.
Some ICICI bank personal made a comment asking the details.
The same was given and I had hoped the penalty money would be repaid.
No such thing occurred.
Oh ! The number of ways ICICI bank fools/cheats people would make a book by itself.