1) although as per your agreement bank can charge prepayment charges it is contrary to RBI circular which prohibits levy of any prepayment charges

2) 

Master Circular on Customer Service in Banks, issued by Reserve Bank of India. There is a specific provision made in the said circular in para 6 which deals with levy of service charges. Para 6.1 of the circular reads as follows:--

"6.1 Fixing service charges by banks The practice of IBA fixing the benchmark service charges on behalf of member banks has been done away with and the decision to prescribe service charges has been left to individual banks. While fixing service charges for various types of services like charges for cheque collection, etc., banks should ensure that the charges are reasonable and are not out of line with the average cost of providing these services. Banks should also take care to ensure that customers with low volume of activities are not penalised.

Banks should make arrangements for working out charges with prior approval of their Boards of Directors as recommended above and operationalise them in their branches as early as possible."

As per para 6.4 of the Circular, which deals with levy of foreclosure charges/ pre-payment penalty on floating rate term loans, it has  been laid that banks will not be permitted to charge foreclosure charges/ pre- payment penalties on all floating rate term loans sanctioned to individual borrowers. In para 6.6 of the Circular, an advice has been given to the bank to follow a uniform, fair and transparent pricing policy and not discriminate between their customers at home branch and non-home branches.

2) at time of renewal bank cannot charge you pre payment charges 

Prepayment charges of 3% are excessive and unreasonable as provided under Section 2 (46) (vi) of the new Consumer Protection Act, 2019. The said charges and absolutely invalid and in contravention of above said provision. You can shift to bank offering 8.5 % interest and challenge the 3% pre payment  charges. Bank cannot charge that much of pre payment charges, a nominal sum can be collected as service charges not more than that.

Dear Sir/Ma'am,

1. As per Rule 6.4 of the Master Circular on customer service in Banks, issued by the RBI, banks are not permitted to charge pre-payment penalties on all floating rate term loans sanctioned to individual borrowers.

2. as per rule 6.6 of the above said Master circular, the advice RBI is for banks to ensure fair and transparent policy and not to discriminate between home branch and non-home branch customers. 

3. you can also refer to the case of State Bank of Patiala vs. Permanent Lok Adalat [decided on 23rd May, 2017]

4. pre-payment charges cannot be charged during the renewal.

Thank You

• For further assistance, you may book a consultation with me.

Foreclosure Charges / Prepayment Penalty - With effect from June 26, 2014 it has been decided that UCBs will not be permitted to charge foreclosure charges / prepayment penalties on all floating rate term loans sanctioned to individual borrowers.

But since yours is not under the category of individual borrower, the prepayment charges are the discretion of the lending bank.

You can find a mention about this in the loan agreement paper that you have signed while getting the loan approved. 

However you can give a representation to the top management of the bank's head office in this regard and request for a relief in this regard.

In general, in  cash credit accounts it is presumed that the customers will utilize the funds and for which banks are required to earmark  their sources to meet the commitment. 

Thus if the customer makes the prepayment of the cash credit account the available funds could not be deployed immediately by the banks. 

Hence they charge the prepayment charges. 

Take over charges will be little higher s it has to take care of the above aspects as well as to prevent frequent shifting of the customer on account of lower  rates of interest offered by other lenders. 

Whether they are legal or illegal is a differnt matter. 

However you can look into the sanction letter carefully and if the action of the bank is as per the sanctioned terms you cannot get immediate relief though the action can be challenged.

If it is not strictly in terms of the sanction letter bring the facts to the notice of the bank manager and ask him to release the documents.  

-   Renewal or change of CC limits can not make any difference to Takeover. Ultimately you have to shift the loan to another bank. But there are changes in terms and conditions and charges at time of renewal so then old rules will not be applicable and new rules/charges will become effective.

-   Bank can charge fees but it was applicable when you started with bank. Afterwards the rules were changed so only a reasonable service fees can be charged by bank. 3% pre-penalty charges are excessive and illegal.

-   If the renewal is nearby then wait till then else do not wait and shift to new bank. You can file consumer court case to recover 3% pre-penalty charges.

Since the offer is optional on your part to accept there is no need to agree on this and you are free to make business with other bank with relatively easier terms .

Dear Concerned,

The charges levied are as per the Sanction terms and the extent guidelines of the Reserve Bank of India. Also the same are agreed by you while the limit was sanctioned to you. 

You will not have to pay any prepayment charges at the time of renewal, but in that case too you have to inform the Bank in advance about you getting the account to be taken over to some other Financial Institution.

Regards

1. There is nothing called prepayment in case of Cash Credit advance.

2. Prepayment clause is applicable on Term Loans where EMIs are fixed  and time period is set to repay entire loan with interest with in that period.

3. Your Co-Operative Bank is not informing you properly.

4. Just repay the amount you have drawn from the limit and make the outstanding as nil.

5. Thereafter close the CC loan account.

6. Since there is no set limit fixed for repaying the loan taken, there is no question of prepayment of the said CC loan. 

It depends on the agreement with the bank during your loan availment. Prepayment charges are valid as per RBI rules.