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Corporate Laws Central Ministry of Finance Reserve Bank of India Act, 1934

Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025

02-Jul-2025 | RBI/2025-26/64 DoR.MCS.REC.38/01.01.001/2025-26

RBI has issued Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025, effective from 01st January 2026.

Key Highlights:
1. Regulated Entities (REs) cannot charge pre-payment fees on floating rate loans taken by individuals for non-business purposes, regardless of co-borrowers or how the loan is repaid.
2. Large banks, top-tier NBFCs, and financial institutions must not charge pre-payment fees for loans to individuals or MSEs (Micro and Small Enterprises) for business purposes.
3. Small banks, cooperative banks, and mid-level NBFCs cannot charge such fees on loans up to INR 50 lakh.
4. These rules apply whether loans are repaid partially or fully, with no minimum lock-in period, and apply even to dual/special rate loans if the loan is on floating rate at the time of pre-payment.
5. For loans not covered above, REs may charge pre-payment fees as per their policy. For term loans, the charge must be based on the prepaid amount, for cash credit/overdraft, it should not exceed the sanctioned limit.
6. No charges if pre-payment is initiated by lender or borrower opts not to renew.
7. Pre-payment charges (if any) must be clearly mentioned in the sanction letter, loan agreement, and Key Facts Statement (KFS). No hidden or retrospective charges are allowed.

For more information, please refer to the attached document.

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