Mumbai, Sep 6 (IANS): To help common people better manage their borrowing costs in view of fluctuating interest rates, banking ombudsmen have asked all banks not to levy any fee for pre-payment of floating rate loans.

"Banks must not recover pre-payment charges in floating rate loans," said an action plan prepared by the ombudsmen at a meeting here Monday.

Most banks levy pre-payment charges on loans, including floating rate loans.

The banking ombudsmen, after their annual conference here at the Reserve Bank of India (RBI), said banks should not levy pre-payment charges because they were better placed to manage interest rate risks than customers.

"Floating rate loans pass on the interest rate risk from banks, which are much better placed to manage it, to borrowers and, thus, banks only substitute interest rate risk with potential credit risk," according to a statement released by the RBI Tuesday.

The banks will, however, be free to charge appropriate pre-payment penalties in the case of fixed rate loans, it said.

The banking ombudsmen's conference, chaired by RBI Deputy Governor K.C. Chakrabarty, suggested 10 action points to improve customer service.

It said in the event of any monetary dispute involving the customer and the bank, in case of ATM or Internet-based banking transactions, the onus should be on the bank to prove the customer's negligence or mistake.

"The customers must be compensated for the losses arising out of transactions not authorised by them," it said.