Money & Banking
Borrowers Beware: Your Bank May Be Ripping You Off
A fair system is one where a borrower who opts for a floating interest loan would pay more when interest rates rise and gets the benefit of a reduction in rates automatically. In India, lenders quickly hike interest rates by increasing the repayment tenure as soon as interest rates inch up, but are happy to fleece the hapless borrower when rates fall. What is shocking is that the difference in interest charged can be as high as 5%. 
 
Consider the case of Satyam Savla, who took a floating rate loan from HDFC Bank in 2007. It was to be repaid in 108 equated monthly instalments (EMIs). His interest rate zoomed to as much as 17.3% by 2010-11. This was almost as high as the rate applicable to unsecured loans at that time, he says. 
 
But, in 2010, the Reserve Bank of India (RBI) changed its rules and issued a notification through its master circular to say that, after 1 June 2010, banks would switch borrowers from the benchmark prime lending rate (BPLR) system applied to floating rate loans, to the base rate calculation, and reset interest accordingly, after obtaining consent from the concerned borrowers. The circular directed bank boards to frame appropriate policies and an “option had to be given to existing borrowers to switch on mutually agreed terms.”
 
However, Mr Savla says that HDFC Bank did not bother to inform him and he was clueless about the highly beneficial change. It was only in September 2012 that he learnt that he was entitled to a lower rate and sought a reset. The interest rate on his loan was then revised sharply downwards to 12.3%, in November 2012. But what about the intervening period (between June 2010 and November 2012) when the Bank had collected excess interest of over Rs6.4 lakh from him? 
 
In 2016, he realised that the Bank had extracted a higher interest by simply increasing his repayment tenure to 122 EMIs. These were subsequently reduced to 114 in 2012, when the interest rate was reset at his request. Since then, he has written innumerable letters to the Bank and to its managing director, Aditya Puri, to no avail. 
 
Mr Savla then filed a complaint with the banking ombudsman (BO), but this was also rejected and the case was closed. 
 
Why did this happen? We learn from Dr KC Chakrabarty, former deputy governor of RBI, that the issue goes back to 2008, when the finance ministry permitted discriminatory treatment of different classes of borrowers, by allowing banks to offer lower rates to new customers.  
 
In 2010, after a hue and cry from borrowers, RBI asked banks to reset loans, but its own circular mischievously ensured that borrowers got a raw deal. Its master circular says: “Existing loans based on the BPLR system may run till their maturity. In case the existing borrowers want to switch to the new system, before expiry of the existing contracts, an option may be given to them, on mutually agreed terms. Banks, however, should not charge any fee for such switch-over.”
 
Why on earth would RBI draft such a flawed circular with an open-ended clause that allowed existing floating rate loans to ‘run to maturity’ unless borrowers asked for a switch? Why didn’t the banking regulator ensure uniform benefits to all borrowers? Only to benefit banks. It is possible that some banks did inform borrowers about the change. It is also likely that many borrowers made inquiries after reading media reports. Government banks do an annual review and may reset rates. But, clearly, each bank does what it wants to. During Dr Chakrabarty’s tenure, a complaint to the BO often helped the customer. But that, too, does not seem to work anymore, going by Mr Savla’s experience. 
 
Mr Savla insists that HDFC Bank did not inform him of the change to base rate. Here is what happened with his complaint to the BO. The Bank Ombudsman’s order says that, after seeking information from the Bank, it is convinced that the change in rate of interest was communicated to Mr Savla by SMS and post and “after following the due procedure of communication the same was implemented by the Bank.” Amusingly, the Bank apparently pointed out that “Information regarding the Base Rate was displayed on their Website and on the notice board of all the Branches as per the Bank Board approved policy.” Did the BO ask HDFC Bank to produce proof of how it had intimated the change in policy to Mr Savla? Was it the SMS produced? We don’t know. Unfortunately, discrimination against borrowers is officially sanctioned and it will not change without determined and concerted and collective protests by those who are affected.
Is the BO correct in its interpretation? Well, consider the rules applicable to credit cards which were also framed only after usurious charges levied on customers led to an uproar. In the case of credit cards, it is mandatory for banks to explain relevant terms and conditions such as fees, charges and applicable interest rates, billing and payment, method of computation of over-dues and renewal and termination procedures. But that is not all. Banks are also required to, separately, give a copy of the Most Important Terms and Conditions applicable to the credit card at the time of application.
 
Why shouldn’t similar, non-discriminatory rules apply to mortgage, where the borrowings are significantly larger? A proactive BO would have taken a holistic approach, instead of looking at whether certain boxes were checked. And a fair regulator would have ensured that borrowers get just and non-discriminatory treatment through its regulations. This brings us to The Charter of Customer Rights issued by RBI on 3 December 2014, under its rock-star governor Raghuram Rajan. In 2017, the Charter remains a meaningless motherhood statement that is unoperational. Moneylife Foundation has recently written to governor Urjit Patel, pleading that the Charter be given more teeth. We are awaiting a response. The Charter recognises five basic rights of bank customers: right to fair treatment; right to transparency, fair and honest dealing; right to suitability; right to privacy; and right to grievance redress and compensation. Here, too, we learn that the right to fair treatment included non-discriminatory treatment between borrowers; but this was dropped under pressure from banks. 
 
A simple reading of Mr Savla’s case shows that the first, second, third and fifth rights have been violated by HDFC Bank if its so-called communication to Mr Savla did not reach him. Mr Savla’s next option is to go to court. But, as the Bank knows, it is likely to cost him more than the extra interest he paid. 
 
After 1 April 2016, RBI has changed the rules, again without any discussion with borrowers and allowed banks to link loans to their marginal cost of funds based lending rate (MCLR). They have the freedom to lend at MCLR or insist on a mark-up. Most ordinary borrowers are clueless about this, or how the loans are reset, now that interest rates have dropped. Worse, banks are allowed to reset rates only once a year, which means that they do not have to pass on the benefit immediately. This is again discriminatory to borrowers, especially when financial literacy is abysmal. 
 
RBI’s treatment of borrowers, based on one-sided contracts, would probably be struck down by a court of law as unconscionable or as one-sided contracts. The question is, who will bell the cat? Please write to Moneylife Foundation at foundation@moneylife.in , if you have questions or issues; we are trying to find a way to represent the borrowers’ case to policy-makers.
 
Do You Have a Floating Rate Loan/ Mortgage?
 
Have you got the benefit of lower interest rates?
 
Please take this survey and tell us if you find the system fair and transparent.
 
Help us to help you by collating data and taking up the issue with policy makers.
 
Moneylife Foundation

 

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COMMENTS

Mehul

2 months ago

I have closed all accounts with this Bank. Usurious charges for not maintaining AMB...despite there being more than adequate funds in other accounts with them and to transfer shortfall if any went unheard. How else will they maintain the market superiority and get a premium pe. The clients foot the bill and that fits the bill of all the high class performers there.

Pradeep Kumar M Sreedharan

2 months ago

What else can we expect from a foreign owned entity functioning like the present day Avatar of East India company. My major concern is not the loot, but the specifically trained Moral degradation of youth of our nation. HDFC is responsible for the rise of " shameless cut any body's throat for PERFORMANCE mindset " in the future of our nation, the youth of India

Hemlata Mohan

2 months ago

It is deplorable that a premier bank like HDFC resorts to such a rip off of unsuspecting middle class customers. As per Basel requirements, the more the grievances and complaints against a bank, the more risk capital it would have to set aside. I urge all HDFC customers ( and other banks too) to write their grievance s to the bank or on their customer portals so that this is viewed by all. Despite so many complaints, how does Mr Puri bag the award for the best banker? Is this award also rigged?

Hemlata Mohan

2 months ago

It is deplorable that a premier bank like HDFC resorts to such a rip off of unsuspecting middle class customers. As per Basel requirements, the more the grievances and complaints against a bank, the more risk capital it would have to set aside. I urge all HDFC customers ( and other banks too) to write their grievance s to the bank or on their customer portals so that this is viewed by all. Despite so many complaints, how does Mr Puri bag the award for the best banker? Is this award also rigged?

Vinay Upponi

2 months ago

HFC big guns should seriously introspect on their business practices. I haven't seen any forum (and I'm reasonably well read and informed) which is fighting to safeguard consumer interest on this front. Perhaps the banking ombudsman's office needs to build a mechanism for consulting with independent research firms like Money life to stay abreast of the malpractices by financial institutions.

REPLY

Sucheta Dalal

In Reply to Vinay Upponi 2 months ago

I am surprised you are reading this on Moneylife, which has a survey at the bottom of the article and yet you say that no forum is taking it up? That is precisely why we have the survey. We are a forum, but since we take on mighty banks at Moneylife foundation (http://foundation.moneylife.in ) we do not get the sponsorships and funding to go to court unless the numbers are truly large enough. So we urge you to spread the word about this and make it meaningful and worthwhile for us to spend scarce resources and even more precious time to fight this. Moneylife is not a research firm -- a research firm gets paid for research by government or institutions. WE run a subscription based magazine. Some parts of it are uploaded free like this article. But survival of such independent voices needs people to subscribe to the magazine! http://www.moneylife.in/archive/magazine.html

Vinay Upponi

2 months ago

HFC big guns should seriously introspect on their business practices. I haven't seen any forum (and I'm reasonably well read and informed) which is fighting to safeguard consumer interest on this front. Perhaps the banking ombudsman's office needs to build a mechanism for consulting with independent research firms like Money life to stay abreast of the malpractices by financial institutions.

Ravish Singh

2 months ago

I had been asking for switch for the existing loan from higher interest rate to current lower rate but unfortunately for the past 10 months asking for a huge fee or asked me to buy a endowment policy to compensate for the fee. I had to run multiple times to visit the branch and they kept making money from my higher interest . I am surprised if no fee is charged for switching why have they used this tri k to sell their policy . Since I was loosing money on higher interest rate I choose to take their product which otherwise I would not have taken.

REPLY

P b Sarma

In Reply to Ravish Singh 2 months ago

The new generation private sector banks are very fast in marketing loans.But they don't care about RBI guidelines favourable to borrowers.Penalty for pre payment of loans was removed long back.But still HDFC bank never implemented the provision and squeezing the customers for many more years.Loan will be arranged in one branch of our choice.But the documents like RC or Sale deeds will be released in a branch situated far away.Similarly opening a Demat account is very easy.But to close a Demat account you have to make at least 3 or 4 rounds to some other branch situated far away.Dont talk of hidden charges.Even for ex bankers like us ,they create problems.Then you can guess how they confuse and trouble other ordinary customers.

Dayananda

2 months ago

This problem was brought to the notice of RBI long back. Instead of solwing the issue RBI changed the prime rate to base rate and now MCLR facilitating further abuse of the system. This was also put in PGPORTAL also but that forum is also waste of public money and time any absurd reply will be accepted and complaint is closed.

REPLY

Dayananda

In Reply to Dayananda 2 months ago

May be it is time for SIT set up by Supreme Court on black money to investigate role of RBI in facilitating and promoting round tripping and money laundering by abducting its duty under FEMA during 2005 onwards.

Suketu Shah

2 months ago

It seems(and rightly so) that the complaints against HDFC Bank are more than the complaints against all banks combined!

P b Sarma

2 months ago

Banks have lost heavily due to Corporate NPAs and their profitability is severely affected.For this loss RBI also is responsible covertly or overtly.So RBI is also supporting the Banks by issuing such circulars to squeeze honest borrowers as much as possible.This is how they want to recoup losses incurred through corporate NPAs partly.

Janakiraman Rajalakshmi

2 months ago

Thank you for stating many truths & busting away overhyped myths about Indian banks. Periodically various journos & jingoistic columnists keep screaming 'aiyo aiyo' whenever the word Sharia Banking gets mentioned. Who knows Sharia Banks co-existing with nationalised banks in India might provide the much needed checks & balances. If what they offer appeals to me I might even consider transferring some of my savings there.

Nilay Patil

2 months ago

HDFC offers 8.9% to old loyal loan payers that too with transfer/conversion fees and 8.6% to customers who are ready to shift from a different bank/institution. Loyalty does not matter ..Terrible. The banks should be made to examine their accounts and repay every customer whom they've cheated in this way. Why should the borrower have to ask to have his/her interest rate reset? It's bizarre that instead of forcing the banks to repay the customers they've defrauded, RBI issues a circular meant to further help the banks in their cheating. One truly begins to wonder: how can all this be going on? Is there no law?

Vinu Ogt

2 months ago

Some one had a foresight about this. He blogged about this.. read here
http://irrational-world.blogspot.in/2011/01/come-2030-home-loan-interest-rate-would.html

Abhijit Gosavi

2 months ago

Terrible. The banks should be made to examine their accounts and repay every customer whom they've cheated in this way. Why should the borrower have to ask to have his/her interest rate reset? It's bizarre that instead of forcing the banks to repay the customers they've defrauded, RBI issues a circular meant to further help the banks in their cheating. One truly begins to wonder: how can all this be going on? Is there no law? And this is happening universally. I mean banks living off society's money, when the only way they provide value to society is through their cash, which is actually obtained from the govt.

Kudos to Moneylife for uncovering this. You are awesome.

REPLY

Abhijit Gosavi

In Reply to Abhijit Gosavi 2 months ago

But, of course, I've known from my very first interactions on SM that you are awesome :)

Pradeep Kumar M Sreedharan

2 months ago

Finance is a den of swindlers, of the worst kind.

SBI should look at VRS post merger of associate banks: AIBEA
The State Bank of India should come with a voluntary retirement scheme after considering the overall staffing picture after merger of five associate banks instead of the five announcing such a scheme before the merger, said the leader of a major bank union.
 
"The five associate banks of State Bank of India (SBI) will soon come out with a voluntary retirement scheme (VRS) as their boards have approved the a scheme. The scheme will be introduced and closed before April 1, 2017, the day on which the merger takes into effect," All India Bank Employees' Association (AIBEA) General Secretary C.H.Venkatachalam told IANS here on Friday.
 
According to him, launching a VRS for the employees of the five associate banks alone is not fair as those who do not opt for retirement and land in the SBI may feel disadvantaged psychologically from day one of the merger.
 
Venkatachalam said branch and staff rationalisation could be look at by the SBI post merger after taking into account an overall view of the operations.
 
On Thursday, the SBI in a regulatory filing in BSE said: "We advise that the Government of India has issued the orders ...under subsection of Section 35 of the State Bank of India Act, 1955... In terms of the said orders, the entire undertaking of SBBJ (State Bank of Bikaner &Jaipur), SBM (State Bank of Mysore), SBT (State Bank of Travancore), SBP (State Bank of Patiala) and SBH (State Bank of Hyderabad) shall stand transferred to and vested in the State Bank of India from April 1, 2017."
 
The cabinet approved acquisition of associate banks by SBI on February 15.
 
According to Venkatachalam, those employees (clerks and officers) who have put in 20 years of service or have completed 55 years of age may be made eligible to opt for VRS.
 
He said the VRS will be open for 15 days from the date of announcement and employees have to exercise their option within that time limit.
 
The VRS quantum may be 50 per cent of the salary for the remaining period of service subject to a maximum of 30 months salary.
 
Venkatachalam said the bank may restrict the number of employees opting for VRS depending on the staffing needs.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

Dayananda

2 months ago

How can they introduce Golden hand shake when Karnataka high court appeal order in a case where an officer was removed from service who proceeded on long leaveto protect himself from compromising on Swift security norms forced on him for bringing out FEMA violations fudging of accounts as internal auditor. The court changed the order even though agreeing punishment disproportionate talks of golden hand shake as officer is stickler for rules and compulsory retirement. The bank conveniently choose compulsory retirement. So without giving any benefit merely changed the words. In the appeal petition the judge says golden hand shake do not have any meaning and uphold banks decision. So how they can offer VRS

Pelapur R.Varadarajan

2 months ago

The private banks are worse than moneylenders. If they know the law, there is a principle called privy which means they should communicate to the borrower and get an acknowledgment from him. They cannot hide under the rules which are in most cases unknown to the borrower. A borrower is not expected to know the banking jargons, linkage to MCLR and all that. The case cited is fit for a battle and ruling in favor of the borrower. The private banks think they are clever in fooling the public. Imagine the plight of poor.

Nifty, Sensex trending higher - Weekly closing report
We had mentioned in last week’s closing report that Nifty, Sensex were still range bound. The major indices of the Indian stock markets showed momentum during the week and closed with decent gains on Friday. The trends of the major indices in the course of the week’s trading are given in the table below:
 
 
Indian equity markets started off the week on a positive note on Monday, with Nifty closing above the five-month high pushed largely by TCS, Infosys and HDFC Bank. After the consolidation in the morning, the markets gained strength in the afternoon trade.
 
TCS announced a buyback of up to 5.6 crore equity shares, about 2.85% of total paid up capital, at Rs2,850 per share, totalling to Rs16,000 crore. The share rallied 4% after the announcement.  N Chandrasekaran takes over as the Chairman of Tata Sons, with the hope of putting behind the hyped boardroom battle that saw the ouster of Cyrus Mistry as Tata Sons Chairman. Maruti Suzuki announced that its smart hybrid vehicles, Ciaz SHVS and Ertiga SHVS, have crossed cumulative sales of 1 lakh units in February 2017. Telecom Stocks rallied after a news report said that Tata Teleservices is in early talks to join Reliance Communications-Aircel-MTS combine.
 
Indian equities markets traded on a flat-to-negative note during the mid-afternoon trade session on Tuesday as selling pressure was witnessed in Teck (technology, media and entertainment), telecom and IT (information technology) stocks. Besides, broadly negative Asian indices and caution ahead of derivatives expiry subdued investors' sentiments. The key indices, which opened on a flat note, traded marginally in the red on the back of profit booking.
 
The CNX Nifty traded sideways due to profit booking. IT sector stocks faced resistance at higher levels, while banking, pharma, auto, oil-gas and FMCG (fast moving consumer goods) stocks traded with mixed sentiments. However, textile, aviation, media-entertainment and cement stocks traded with firm sentiments due to buying support, although power sector stocks traded with bearish sentiments. Reliance Industries (RIL) Chairman and Managing Director Mukesh Ambani on Tuesday said Reliance Jio has crossed the 100 million customer mark since its launch on September 5.
 
Positive global cues, coupled with a strengthened rupee, pushed the Indian equities markets higher on Wednesday. Besides, a sharp rise in Reliance Industries Ltd (RIL) stocks, a day after Reliance Jio announced its tariff plans, buoyed investors sentiments. However, caution prevailed ahead of the release of minutes of the US Fed's Federal Open Market Committee (FOMC) and the Reserve Bank of India's Monetary Policy Committee (MPC) as well as derivatives expiry. In contrast, the BSE market breadth was tilted in favour of the bears -- 1,748 declines and 1,092 advances.
 
Automotive and industrial lubricant manufacturer Castrol India on Tuesday reported a rise of 10.7% in its net profit for the quarter ended December 31, 2016. The company informed the BSE that its net profit during the quarter under review increased to Rs155.8 crore from Rs140.8 crore. It reported a decline of 1.1% in its net sales for the fourth quarter to Rs782.2 crore from Rs790.9 crore. For the financial year ended December 31, 2016, the company reported that its profit from operations was up by 12.2% at Rs959.9 crore, whilst net profit was higher by 9.7% to Rs674.9 crore. 
 
On Thursday Indian equities markets closed on a flat-to-positive note, with the telecom sector stocks rising following a major acquisition announcement by telecom major Bharti Airtel of Telenor’s India operations. Despite a volatile trade session on the back of derivatives expiry, the benchmark index Nifty touched its 52-week high during the intra-day trade. The key indices pared most of their initial gains to close marginally in the green, as healthy buying was witnessed in IT, Teck (technology, media and entertainment) and consumer durables stocks. The BSE market breadth was tilted in favour of the bulls -- 1,315 advances and 1,283 declines. On the NSE, there were 660 advances, 978 declines and 70 unchanged.
 
Global credit rating agency Moody's Investors Service on Thursday said continuing to increase non-watch list Non-Performing Loans (NPLs) would put pressure on Axis and ICICI banks' credit profiles. On the other hand, asset quality trends for public sector banks were more benign, and the pace of deterioration was slowed in the past two quarters from the levels seen in FY2016, Moody's said.
 
International Monetary Fund (IMF) said that India's overall outlook remains positive, although growth will slow temporarily as a result of disruptions to consumption and business activity from the recent withdrawal of high-denomination banknotes from circulation. But the nation's expansion will pick up again as economic reforms kick in, said the IMF in its latest assessment. IMF reduced is growth forecasts to 6.6% for fiscal year 2016-17 and to 7.2% in 2017-18.
 
Tata Motors rose 0.31% after the company said its board will meet on 2 March 2017 to consider raising Rs 500 crore through private placement of non-convertible debentures. The company said that it is desirous of offering the sixth series of its rated, listed, unsecured, redeemable, non-convertible debentures (NCDs) aggregating to Rs500 crore.
 
The BSE market breadth was marginally in favour of the bears -- with 1,200 advances and 1,574 declines. On the NSE, on Friday, there were 660 advances, 978 declines and 70 unchanged. 

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