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Banks to stop levy of pre-payment penalty on floating rate loans: RBI

RBI also asked banks and the IBA to work together to roll out a media campaign to create awareness about products and banks’ commitment to Fair Practices Codes.

February 04, 2014 3:57 IST | India Infoline News Service
The Reserve Bank of India (RBI) on Friday asked banks to stop the practice of levying penalty on non-maintenance of minimum balance in ordinary savings bank account.
“Banks may discontinue the practice of levying penalty for non-maintenance of minimum balance in ordinary savings bank accounts and instead consider converting such accounts to Basic Savings Bank Deposit accounts,” RBI said in the Annual Report of the Banking Ombudsman Scheme for 2012-2013.
RBI has also asked IBA (Indian Banks’ Association) to issue instructions at the earliest to banks to discontinue levy of pre-payment penalty on all floating rate loans and ensure that fixed rate loans are truly fixed and are not referenced to any floating rate benchmark.
“The onus of proving customer-level negligence would be on the bank and when such negligence is not established beyond doubt, the benefit of such doubt may be given to the customer. IBA and banks should strive to put in place policies, systems and processes to secure electronic banking systems, protect customer’s interest to bring it ‘on a par’ with traditional delivery channels,” RBI said.
RBI also asked banks and the IBA to work together to roll out a media campaign to create awareness about products and banks’ commitment to Fair Practices Codes.
“The Depositor Education and Awareness Fund and banks’ own advertisement budget may be used for the purpose,” said RBI.


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