The RBI said its directions are subject to specific conditions based on the property category and loan amount sanctioned.
A Small Finance Bank, a Regional Rural Bank, a Level 3 Primary (Urban) Cooperative Bank, a State Cooperative Bank, a Central Cooperative Bank and an NBFC-ML (Non-Banking Finance Company – Middle Tier) providing loans for business purposes to individuals and small and medium enterprises, with or without associate(s), cannot charge prepayment charges on loans with a sanctioned amount/limit up to ₹50 lakh.
Loan agreements
The Reserve Bank of India (Loan Advance Payments) Guidelines, 2025, aims to address customer complaints arising from inconsistent practices and restrictive clauses in loan agreements, which particularly affect MSEs.
The guidelines are intended to ensure consistency and transparency in the levy of prepayment charges between regulated entities (REs). They apply to all commercial banks (excluding payments banks), co-operative banks, NBFCs and all Indian financial institutions.
The RBI said its directions are subject to specific conditions based on the property category and loan amount sanctioned.
The directions also stipulate that the terms and conditions relating to prepayment charges should be clearly stated in the sanction letter, the loan agreement and, if applicable, the Key Facts Statement (KFS).
In addition, charges not disclosed in advance cannot be subsequently imposed and no retroactive or previously waived charges may be assessed at the time of prepayment.
In addition, borrowers cannot be charged prepayment fees if they choose not to renew a cash line of credit or overdraft and notify the RE in advance.
The applicability of the above guidelines for dual/special rate loans (combination of fixed and variable rates) will depend on whether the loan has a variable interest rate at the time of prepayment.
Published on December 22, 2025
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