Assets Under Management (AUM) of the non-banking finance company is expected to get impacted by 5-25 percent due to removal of prepayment charges of floating rate loans to individuals and MSMEs, according to IIFL report.
“We expect 5-25% of NBFC’s AUM to be impacted with majority of them charging 2-5% pre-payment penalties,” report said.
The report added that PNB Housing Finance charge 3 percent pre-payment penalty for non-housing/business loans by individuals. L&T Finance charge individuals for business purposes: 3 percent for first 1 year (2 percent after that), and non-individuals: 4 percent for first 1 year (3 percent after that).
Aadhar Housing Finance charges 3 percent pre-payment penalty for business purposes, the report said. On July 2, the Reserve Bank of India (RBI) has asked banks and non-banking financial companies (NBFCs) to not charge any prepayment penalty on floating rate loans to micro and small enterprises (MSEs), sanctioned or renewed from January 1, 2026.
The central bank had said that availability of easy and affordable financing to MSEs is of paramount importance. However, Reserve Bank’s supervisory reviews have indicated divergent practices amongst Regulated Entities (REs) with regard to levy of pre-payment charges in case of loans sanctioned to MSEs which lead to customer grievances and disputes.
Further, certain REs have been found to include restrictive clauses in loan contracts/ agreements to deter borrowers from switching over to another lender, either for availing lower rates of interest or better terms of service, RBI said.
The IIFL report also said that there will be material increase in competitive intensity in Loan Against Property (LAP) and floating rate MSME loans, reducing their profitability structurally as exit barriers are removed.
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