Regular follow-ups by CICU lead to RBI’s amendment allowing foreclosure of business loans to MSEs and individuals without penalties

Ludhiana, February 27, 2025: The Chamber of Industrial and Commercial Undertakings (CICU) has applauded the Reserve Bank of India’s (RBI) recent amendment that empowers borrowers by allowing foreclosure or prepayment of floating rate loans without penalties or charges. This ground breaking decision is expected to bring significant relief to individuals and Micro and Small Enterprises (MSEs).

The RBI, through a draft circular issued last Friday, has mandated that lenders permit foreclosure or prepayment of all floating rate loans sanctioned to individuals (for purposes other than business) without imposing any penalties. For floating rate loans granted for business purposes to individuals and MSEs, the RBI has stipulated that lenders — except Tier-I and Tier-II urban co-operative banks and base-layer Non-Banking Financial Companies (NBFCs) — cannot levy foreclosure or prepayment charges. The threshold for MSE borrowers to avail of this benefit has been set at ₹7.5 crore.

This pivotal amendment has been a result of persistent efforts and advocacy by CICU to protect the interests of MSEs and individuals burdened by inflexible loan structures. The organization has long been at the forefront of urging the RBI to introduce borrower-friendly policies that ensure financial freedom and flexibility for entrepreneurs and small businesses. CICU made numerous efforts to make this happen, was in regular contact with the Ministry of Finance as well as the RBI to make this amendment. Communication with the related authorities was regular for the past 1.5 years.  After making these efforts, CICU has now helped the industries to benefit from this notification by the RBI.
Sh. Upkar Singh Ahuja, President of CICU, expressed his gratitude to the RBI, stating, “We wholeheartedly thank the RBI for this borrower-centric amendment. This decision will empower MSEs and individuals by reducing their financial stress and enabling them to manage their finances more effectively. CICU has always been committed to advocating for policies that enhance the growth and sustainability of small enterprises, and this amendment is a monumental step in that direction.”

Honey Sethi, General Secretary of CICU, emphasized the significance of this decision, noting, “This progressive move by the RBI will encourage entrepreneurs to expand their businesses without the fear of financial penalties. CICU’s continuous engagement with policymakers has played a critical role in ensuring that the voices of small businesses are heard.”

Ajay Bharti, Finance Secretary of CICU, highlighted the broader economic impact, stating, “Eliminating foreclosure and prepayment charges will reduce borrowing costs for MSEs and individuals, which in turn will boost liquidity and foster economic growth. This amendment is a testament to the collaborative efforts between CICU and regulatory bodies like the RBI.”

This amendment is particularly beneficial for MSEs, who often face challenges in managing their cash flows. By removing penalties for early repayment, the RBI has enabled these enterprises to optimize their financial resources without the burden of additional costs. The threshold of ₹7.5 crore ensures that a large segment of MSEs will benefit from this regulation.

CICU views this amendment as a step toward greater financial inclusion and ease of doing business in India. It underscores the RBI’s commitment to fostering a borrower-friendly financial ecosystem and supporting the backbone of India’s economy — its micro and small enterprises.