Outlook Business Desk
The Reserve Bank of India (RBI) has issued new rules on prepayment charges for loans given to micro and small enterprises (MSEs), aiming to protect borrowers from unfair levies. The guidelines take effect from 1 January 2026.
To stop banks from blocking borrowers seeking better deals, the Reserve Bank of India (RBI) has issued fresh norms. The new RBI (Pre-payment Charges on Loans) Directions 2025 aim to prevent unfair restrictions on switching lenders for better terms.
Effective from 1 January 2025, the new RBI directions will apply to all commercial banks (except payments banks), cooperative banks and non-banking financial companies (NBFCs), ensuring fairer loan switching options for borrowers.
The RBI’s new prepayment rules apply to all regulated lenders—including banks, non-banking financial companies (NBFCs) and others—specifically for floating rate loans and advances.
If you’ve taken a floating rate loan for non-business purposes, lenders cannot levy any prepayment charges—regardless of which bank or non-banking financial company (NBFC) the loan was taken from.
Even some business loans are exempt. No prepayment charge if the lender is a commercial bank, Tier 4 urban co-op bank, NBFC-UL (upper layer), or an all-India financial institution. Others like NBFC-MLs and rural banks also can’t charge if loan size is up to ₹50 lakh.
If a loan doesn’t fall under the RBI’s exempted categories, lenders can still levy prepayment charges—but only as per their board-approved policy.
For term loans, any prepayment charge must be calculated only on the prepaid amount. In overdraft or cash credit cases, charges can apply only on amounts within the sanctioned limit.