Removing penalty on foreclosure of Home Loans unlikely to affect Banks

RBI stopped prepayment penalty on home loans since last week. “I welcome this decision because home loan is a national priority and customers stand to gain,” said Mr. M. Narendra, Chairman and Managing Director, Indian Overseas Bank.

“The customers were chased for retail loans earlier and there was enough liquidity in the market. But today, that situation is not there, and the costs are not cheaper for any bank. Hence, the waiver of penalty will not trigger any big shifts in the market,” Mr. Narendra said.

This move has tempted customer for foreclosure of loans and opt for loan-swaps scheme offered by banks often.

According to experts, very less proportion of customers opt for foreclosure. Hence, this step will enhance competition among banks and better setting up of floating interest rate home loans.