New Delhi, Feb. 22 -- The Reserve Bank of India (RBI) has issued draft guidelines proposing the removal of foreclosure charges on floating-rate loans for retail and micro, small, and medium enterprise (MSME) borrowers.

The guidelines, released on Friday, also suggest that loans granted for business purposes to individual borrowers should be exempt from prepayment penalties.

The proposed changes aim to provide greater financial flexibility, allowing borrowers to switch to lenders offering better terms without incurring additional costs.

Currently, retail borrowers face prepayment penalties of 4-5 per cent on the outstanding principal for personal loans.

The RBI's draft circular states that all regulated entities (REs), except Tier 1 an...