The new directions aim to address customer grievances arising from inconsistent practices and restrictive clauses in loan agreements, particularly affecting MSEs
The RBI said its directions are subject to specific conditions based on the category of RE and sanctioned loan amount.
Banks and non-banking finance companies (NBFCs) cannot levy pre-payment charges on floating rate loans granted to individuals for non-business purposes and to individuals and micro and small enterprises (MSEs) for business purposes, according to RBI’s directions in this regard, which come into effect from January 1, 2026.
A small finance bank, a regional rural bank, a tier 3 primary (urban) cooperative bank, state cooperative bank, central cooperative bank and an NBFC-ML (non-banking finance company – middle layer) granting loans for business purpose to individuals and MSEs, with or without co-obligant(s), cannot levy any pre-payment charges on loans with sanctioned amount/limit up to ₹50 lakh.
Loan agreements
The Reserve Bank of India (pre-payment charges on loans) directions, 2025, aim to address customer grievances arising from inconsistent practices and restrictive clauses in loan agreements, particularly affecting MSEs.
The directions seek to ensure consistency and transparency in the levy of pre-payment charges across regulated entities (REs). They are applicable to all commercial banks (excluding payment banks), cooperative banks, NBFCs and all India financial institutions.
The RBI said its directions are subject to specific conditions based on the category of RE and sanctioned loan amount.
The directions also mandate that the terms regarding pre-payment charges must be clearly disclosed in the sanction letter, loan agreement and, where applicable, the key facts statement (KFS).
Further, charges not disclosed upfront cannot be imposed later and no retrospective fees or charges waived earlier can be levied at the time of pre-payment.
Additionally, borrowers cannot be charged pre-payment fees if they opt not to renew a cash credit or overdraft facility and notify the RE in advance.
Applicability of above directions for dual/special rate (combination of fixed and floating rate) loans will depend on whether the loan is on floating rate at the time of pre-payment.
Published on December 22, 2025
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