Banks barred from recovering pre-payment charges on floating rate loans

Banks must not recover pre-payment charges in floating rate loans while the bank will be free to charge appropriate pre-payment penalties in the case of fixed rate loans, the Reserve Bank of India quoted decisions taken at the annual conference of banking ombudsmen held in the RBI office on Monday.

Banks may also offer long-term fixed rate housing loans to their customers and address their asset liability mismatch (ALM) issues by recourse to the interest rate swaps (IRS) market, the RBI release said.

Floating rate loans pass on the interest rate risk from banks, which are much better placed to manage it to borrowers, and, thus, banks only substitute interest rate risk with potential credit risk, it pointed out.

These were among ten action points to improve customer service of banks discussed at the annual bank ombudsman's conference.

Indian Banks' Association (IBA) has been authorised to standardise most important terms and conditions (MITC) for at least ten important banking transactions and circulate among banks for adaptation.

Banks would initiate the process of providing one view of all bank accounts of a customer, including deposits, loans, etc, with the help of available technology, such as, core banking solution. The process would be complete within one year.