Limited benefits

This refers to the report “No prepayment penalty on floating home, auto loans” (September 7). The Reserve Bank of India’s (RBI’s) move to ask banks to charge no pre-payment penalties on floating rates loan will provide relief to customers who have been burdened with extra payment liabilities as a result of the steep increase in the interest rates. However, I am surprised that RBI has restricted this move to only floating rate loans. It should have been made applicable to cases of fixed rate loans too, where interest rates have gone up after borrowing by a customer. Banks should not charge pre-payment penalty to customers who had availed of fixed rate loans around two years ago and want to pre-pay the loan now since the rates have increased steeply in the last two years. Also, the upper ceiling of pre-payment penalty should be defined by RBI for all types of loans. RBI should allow banks to charge a maximum pre-payment penalty of 2.5 per cent and it should also be slab-based. This means if the loan amount is high, pre-payment penalty should be low, which will be less burdensome for a borrower. I feel that RBI’s current suggestion can only help customers in a limited way.

Vivek Sharma, Navi Mumbai (BS)