Scrap pre-payment penalty on floating loans: NHB to HFCs

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In a bid to usher in transparency and fairness in the home loan segment, the National Housing Bank has directed all housing finance companies to ensure uniformity in floating interest rates loans to old and new customers.

The Bank, which is the regulator and supervisor of housing finance companies (HFCs), also said these companies should not charge pre-payment penalty on pre-closure of housing loans, subject to certain situations.

“The directive to ensure uniformity in floating interest rate loans charged to old and new customers with the same risk profile is aimed at bringing efficiency in the home loan market. This will give borrowers the choice to move to a lender charging lower interest rate,” said Mr R.V. Verma, Chairman and Managing Director, NHB.

On pre-closure of home loans, NHB said a floating interest rate home loan can be pre-closed through any means – by borrowing from a bank/HFC/non-banking finance company or a financial institution – while a fixed interest rate home loan can be pre-closed only from the borrower's own sources.

In order to ensure that pricing of home loans by all lenders is transparent, non-discriminatory and objective, Mr Verma felt that it would be advisable for the banking system to also follow the new norms.

Mr K. Unnikrishnan, Deputy Chief Executive, Indian Banks' Association, said banks' feedback on uniformity in interest rates and pre-payment penalty will soon be conveyed to the Reserve Bank of India.

Links from various news papers:


http://www.thehindubusinessline.com/ind ... ef=wl_home
http://business-standard.com/india/news ... ty/453160/
http://timesofindia.indiatimes.com/busi ... 420731.cms

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Here is the NHB notification.