Mumbai: The Reserve Bank of India on Tuesday scrapped foreclosure or prepayment charges on floating rate home loans.
"Though many banks have, in the recent past, voluntarily abolished the pre-payment penalties on their floating rate home loans, there is a need for ensuring uniformity across the banking system in this regard," the RBI said in its Annual Monetary Policy Statement for 2012-13 (Apr-Mar) released on Tuesday.
The central bank said detailed guidelines on removal of such charges would be issued later.
The RBI believes removal of these charges will level the playing field for existing and new home loan borrowers, and competition among banks will improve the pricing of such products.
An RBI-appointed committee headed by M. Damodaran, former chairman of the Securities and Exchange Board of India, to suggest improvement in banking services had also recommended removal of such levies by banks.
The panel had observed that home loan borrowers were against such charges, especially because banks did not adequately pass on the benefit of cuts in policy rates to them.
The committee also said the foreclosure charges dissuade borrowers from switching to cheaper options.