Brief Overview:
Effective 1st January 2026, no prepayment charges shall be levied for all loans granted for: (a) business purposes to individuals and Micro and Small Enterprises (MSEs), with or without co-obligant(s); and (b) purposes other than business to individuals, with or without co-obligant(s).
Technical Details:
Applicability
All loans and advances sanctioned or renewed on or after 1st January 2026 by commercial banks (excluding payments banks), co-operative banks, non-banking finance companies (“NBFCs”) and all India financial institutions (“AIFs”).
Key Highlights
1) No pre-payment charges on floating rate loans taken by individuals for non-business purposes.
2) No pre-payment charges by commercial banks (except small finance banks, regional rural banks, and local area banks), Tier 4 urban cooperative banks, NBFCs in the upper layer, and AIFs on floating rate loans taken by individuals for business purposes and MSEs.
3) No pre-payment charges on early closure of overdraft facilities.
4) Lenders to mention the applicability of pre-payment charges in the sanction letter, loan agreement and / or the key facts statement (if any).
5) Applicability of the notification regardless of the source of funds used for pre-payment whether partial or full, and without any lock-in period.
For further details, please see:
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT642A32A71F06D649B78A9622FB82B8C438.PDF
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