The RBI has said that floating rate home loans will be spared penal
charges in case of prepayments.MUMBAI: In what could potentially bring
a smile on the faces of millions of borrowers, the Reserve Bank of
India (RBI) has said that floating rate home loans will be spared
penal charges in case of prepayments. As part of a 10-point agenda to
improve customer service, banks have also been asked to look at
introducing a new category of fixed rate home loans on which
prepayment charges would be allowed.
RBI's decision on home loans was taken at a Banking Ombudsman
Conference, on Monday, where the banking regulator had asked bank
chiefs and the ombudsmen present to identify ten action points to
further improve their customer service. Besides the decision on home
loans, the action points include measures to protect customer interest
in unauthorized ATM transactions, and a policy for compensation to
customers for mental harassment.
The regulator for housing finance companies like HDFC and LIC Housing
Finance - the National Housing Bank -- has already directed lenders
not to impose prepayment charges where the borrower uses his own funds
to reduce his loan liability. However, housing finance companies are
allowed to impose a penalty where the borrower refinances the loan.
In the banking sector some lenders do not charge for part-prepayment.
Market leader State Bank of India's chairman Pratip Chaudhuri upon
taking charge had said that the bank would not charge for any form of
prepayment. However, there has not been any regulatory directive save
for one condition that stipulates that terms of the contract cannot be
unilaterally changed by the bank after the loan agreement is signed.
The Banking Ombudsman Scheme, which was introduced in 1995, provides
an additional grievance redressal platform for consumers. Banks are
bound to adhere to the awards granted by the ombudsman. Customers,
however, have the freedom to approach the courts if they are unhappy
with the order.
"Banks may also offer long-term fixed rate housing loans to their
customers and address their asset liability mismatch (ALM) issues by
recourse to the Interest Rate Swaps (IRS) market. 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," RBI said in a statement
highlighting the 10 action points. The statement added that banks
would be free to recover/ charge appropriate prepayment penalties in
the case of fixed rate loans.
Inaugurating the conference on Monday, RBI governor D Subbarao said
that in customer service area rendering good customer service was like
'prevention' and was better than the 'cure' which was the various
grievances redressal mechanisms.
--
CA Ramachandran Mahadevan,M.Com.,F.C.A.,
charges in case of prepayments.MUMBAI: In what could potentially bring
a smile on the faces of millions of borrowers, the Reserve Bank of
India (RBI) has said that floating rate home loans will be spared
penal charges in case of prepayments. As part of a 10-point agenda to
improve customer service, banks have also been asked to look at
introducing a new category of fixed rate home loans on which
prepayment charges would be allowed.
RBI's decision on home loans was taken at a Banking Ombudsman
Conference, on Monday, where the banking regulator had asked bank
chiefs and the ombudsmen present to identify ten action points to
further improve their customer service. Besides the decision on home
loans, the action points include measures to protect customer interest
in unauthorized ATM transactions, and a policy for compensation to
customers for mental harassment.
The regulator for housing finance companies like HDFC and LIC Housing
Finance - the National Housing Bank -- has already directed lenders
not to impose prepayment charges where the borrower uses his own funds
to reduce his loan liability. However, housing finance companies are
allowed to impose a penalty where the borrower refinances the loan.
In the banking sector some lenders do not charge for part-prepayment.
Market leader State Bank of India's chairman Pratip Chaudhuri upon
taking charge had said that the bank would not charge for any form of
prepayment. However, there has not been any regulatory directive save
for one condition that stipulates that terms of the contract cannot be
unilaterally changed by the bank after the loan agreement is signed.
The Banking Ombudsman Scheme, which was introduced in 1995, provides
an additional grievance redressal platform for consumers. Banks are
bound to adhere to the awards granted by the ombudsman. Customers,
however, have the freedom to approach the courts if they are unhappy
with the order.
"Banks may also offer long-term fixed rate housing loans to their
customers and address their asset liability mismatch (ALM) issues by
recourse to the Interest Rate Swaps (IRS) market. 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," RBI said in a statement
highlighting the 10 action points. The statement added that banks
would be free to recover/ charge appropriate prepayment penalties in
the case of fixed rate loans.
Inaugurating the conference on Monday, RBI governor D Subbarao said
that in customer service area rendering good customer service was like
'prevention' and was better than the 'cure' which was the various
grievances redressal mechanisms.
--
CA Ramachandran Mahadevan,M.Com.,F.C.A.,
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