Mumbai, July 3 -- The Reserve Bank of India (RBI) has barred banks and regulated lenders from charging pre-payment fees on floating-rate loans, including those taken by individuals and micro and small enterprises (MSEs) for business purposes. The new rules will take effect from January 1, 2026, according to a Press Trust of India report.

At present, lenders are not permitted to impose foreclosure or pre-payment penalties on floating-rate loans taken by individuals for non-business purposes, even if co-borrowers are involved.

However, RBI noted that its supervisory reviews revealed inconsistent practices by lenders when it came to loans extended to MSEs, leading to customer complaints and disputes.

In response, the central bank has issu...