RBI bans pre-payment penalties on floating-rate loans for MSEs, individuals from Jan 1

The Reserve Bank of India (RBI), to improve access to affordable credit for Micro and Small Enterprises (MSEs) and individual borrowers, has prohibited regulated entities, including banks and other lenders, from imposing pre-payment penalties on many floating-rate loans. This will come into effect from January 1, next year and will



apply to all loans and advances that are sanctioned or renewed on or after this date. 

The RBI emphasised that this move aligns with its developmental and regulatory goals to promote borrower-friendly practices and ensure transparency in lending.