Damodaran Committee: No difference in interest rates for borrowers in same class

The Committee has also said that all borrowers should be allowed to switch over from fixed to floating rates, or vice-versa, at least once during the tenure of the loan, and at an appropriate and reasonable fee

The Damodaran Committee on bank customer services has said that there should be no differentiation in the interest rates charged by banks to borrowers with the same risk rating and in the same category. Banks should also inform the borrower about the benefits of switching over to the base rate from the floating interest rate home loan, or vice-versa, the committee said in its report that was published by the Reserve Bank of India on Wednesday.

"In a floating interest rate scenario, when an entire class of borrowers has the same characteristic and risk level, the point of entry in time (old customers and new customers) should not create discrimination in interest rate offered to the customers. In such cases, the spread over the base rate should not vary when individual risk rating for loans is absent, as is usually the case in retail loans," the report said. The committee, set up by the RBI was headed by M Damodaran, former chairman of the Securities and Exchange Board of India.

Across the country, bank home loan customers who have floating interest rate loans have expressed unhappiness over the discrimination in interest rates offered to new customers. Existing customers of banks who are disadvantaged have been questioning the logical basis for giving such concessions to a few new customers and how the banking risk is lowered suddenly for such class of customers.

It recommends that "all home loans should permit a switchover between fixed to floating or vice-versa, at least once during the loan tenure, at an appropriate and reasonable fee."

"The risk rating system should be a critical input for setting pricing and non-pricing terms of loans and where the risk for any class of customers is the same, the interest rates for fixed rate loans should not vary at the same point of time, and for floating rate loans vary differently for different sets of customers at different points of time," the committee said.

The Damodaran Committee said it feels that regulation should plug such anomalies which create doubts about fairness regarding pricing, which should be transparent, non-discriminatory and also objective.

The Committee also said that there should be explicit regulatory prescriptions and a closer regulatory oversight of such actions by banks, which raise customer issues clogging the grievance redressal mechanisms.

On housing loan foreclosure charges, the committee suggested that banks should not impose exorbitant penal rates towards foreclosure of home loans and a policy should be devised to ensure that a customer is not denied the opportunity to enhance his economic welfare by making choices such as switching to other banks or financial entities to enjoy the benefits conferred by market competition.

The committee also says that all home loans must clearly state the most important terms and conditions and make this available in the local language and in a bigger font (preferably size 12). Banks should automatically provide the annual account statement, containing details of payments made towards principal and interest including the principal outstanding, to home loan customers without request from them.

The Damodaran Committee also suggested that "home loans backed by insurance products, in any eventuality, should be automatically settled by the insurance amount with minimum inconvenience to the nominees and heirs. The procedure should be explained upfront to the customers."

Another key recommendation is on title deeds. "The title deeds should be returned to the customers within a period of 15 days after the loan closure and the Boards of banks should put in place a suitable compensatory policy to compensate the customer  for delayed return of title deeds or where there is a loss of title deeds in the custody of the banks."

The report says regulation should ensure that customers clearly understand the pricing policies of banks, as the committee in its interactions all over the country saw that variances in these issues give rise to customer dissatisfaction.



Manish Shah

5 years ago

Even after changing to base rate the problem of differential rate for new and old borrower continued. I am having housing loan from IDBI bank since Jan 2008. At present, interest rate is 12.5%. While the new borrowers are paying less than 11%. In order to reduce the burden, I increased the EMI by 50% and made a large chunk of prepayment. Several times in the news it has been reported that IDBI BANK is planning to come up with an innovative scheme for existing borrowers to reduce interest rate burden. I requested several times the bank to make interest rate in line with the current interest rate to new borrowers, but failed. At one instance, I approached to a very senior executive of the bank to help me out on the same considering the payment track record (paid off 33% loan amount in 36 months) but failed. There is only one way to address this issue is:
1) The reference rate for deposits and loan should be market driven and same across all banks
However, RBI it self does not have any single reference rate it is hard to believe that the bank would move to single reference rate.

SEBI clears single-window clearance for prior approvals

The notification said that in case an applicant holds multiple registrations with the regulator, it shall make only one application to SEBI providing certain information about itself and the acquirer and its directors or partners

Mumbai: Market regulator Securities and Exchange Board of India (SEBI) yesterday approved a single-window clearance system for market entities, including stock brokers, merchant bankers and credit ratings agencies, for grant of prior approval for change in control of their management structures, reports PTI.

"With a view to expedite the process of granting prior approval (in case of change of control), it has been decided to adopt a single window clearance at SEBI, for the...
intermediaries in case of their having multiple registrations with SEBI," the market regulator said in a notification.

Market intermediaries like stock brokers, merchant bankers, debenture trustees, registrar to an issue and share transfer agents, underwriters, depository participants, bankers and credit rating agencies that have more than one registrations with SEBI, have to submit multiple applications for prior approval to change in control.

The notification said that in case an applicant holds multiple registrations with the regulator, it shall make only one application to SEBI providing certain information about itself and the acquirer and its directors or partners.

The information sought is whether any application was made in the past to SEBI seeking registration in any capacity which was not granted and its details, and what kind of action was initiated on the application and its current status.

"The acquirer shall also confirm that it shall honour all past liabilities/obligations of the applicant, if any," SEBI said.

The applicant has also to furnish details on any investor complaint pending against it, details of litigation, payment of due fees to SEBI, and a guarantee that there will be no change in the board of directors of the firm, till the time prior approval is granted.

It would also have to pledge to inform all its existing investors and clients in order to enable them to take informed decision regarding their continuance or otherwise with the entity with new management.

In case, the applicant is registered stock broker and or depository participant, it shall also have to obtain approval or non-objection certificate from all the stock exchanges of which it is a member and submit a self attested copy of the same to SEBI.

Any prior approval granted under the single-window system shall be valid for a period of 180 days from the date of communication.

In June this year, SEBI had waived the requirement for bankers, debenture trustees and credit rating agencies to seek prior approval from it to change their status and constitution, in a move aimed at doing away with unnecessary rules and red-tapism.

However, market entities still need to seek SEBI's prior approval in case of change in control.


Economic worries pull down share prices: Thursday Closing Report

Nifty may see a small pullback, but signs of a much deeper fall surface

A positive closing on the US market on Wednesday helped the indices open higher today. However, fresh inflation data dented the gains in the first half of trading and a drop in European shares on weak economic data pulled down the indices further in late trade.

The Nifty opened seven points higher at 5,412 and the Sensex started the day at 17,984, up 43 points over its previous close. PSU, banking, realty and metal stocks were in demand in early trade. The indices rose to the day’s high in the first hour, with the Nifty touching 5,435 and the Sensex at 18,033.

However, the market soon slipped into negative terrain, then stayed range-bound, hovering on both sides of the neutral line till around noon. The steep rise in weekly food inflation data to 8.04% for the week to 23rd July from 7.33% in the previous week, pushed the market into the red, and all sectoral indices traded lower.

The indices fell to their intra-day lows in late trade, as key European markets pared initial gains and slipped into the red. At the day’s low, the Nifty was down to 5,323 and the Sensex touched 17,665. The market settled a tad above these levels, with significant losses for a third day in a row. The Nifty closed at 5,332, down 73 points, and the Sensex declined 247 points to 17,693.

The advance-decline ratio on the National Stock Exchange (NSE) was 575:1127.

Among the broader indices, the BSE Mid-cap index declined 0.76% and the BSE Small-cap index was down 0.57%.

There were no green ticks in the sectoral space today. BSE Realty (down 2.16%), BSE Auto (down 2.06%), BSE Fast Moving Consumer Goods (down 1.82%), BSE Metal (down 1.76%) and BSE Power (down 1.61%) were the top losers.

Reliance Infrastructure (up 0.95%) and Reliance Communications (up 0.66%) were the only two gainers in the Sensex. The top losers were Mahindra & Mahindra (down 4.45%), ITC (down 3.17%), NTPC (down 2.48%), Hindalco Industries (down 2.47%) and Bajaj Auto (down 2.46%).

The top gainer on the Nifty was BPCL (up 3.49%), and GAIL (up 0.85%), RCom (up 0.61%) and Reliance Infra (up 0.27%) also gained. The major losers on the benchmark were Ranbaxy (down 4.13%), Reliance Capital (down 4%), M&M (down 3.96%), ITC (down 3.38%) and Sun Pharma (down 3.23%).

Markets in Asia pared morning gains and settled mostly lower on worries that the weak economic outlook in the US could hurt export-driven economies in the region and derail global growth. The Japanese market, however, was an exception, as it edged higher following government intervention in the currency market to hold the strengthening yen.

The Hang Seng declined 0.49%, the Jakarta Composite fell 0.35%, the Straits Times skidded 0.75%, the Seoul Composite tumbled 2.31% and the Taiwan Weighted tanked 1.65%. On the other hand, the Shanghai Composite rose 0.21%, the KLSE Composite added 0.12% and the Nikkei 225 gained 0.23%.

Back home, foreign institutional investors were net sellers of stocks worth Rs869.69 crore on Wednesday, but domestic institutional investors were net buyers of equities worth Rs422.48 crore.

Lanco Infratech plans to invest over Rs13,000 crore for a 2,000-MW power plant and developing a coal block, which it has won through bidding from Maha Tamil Collieries, at Raigarh in Chhattisgarh. Of this, Rs12,000 crore will go towards the power project and Rs1,000 crore for development of the mine. The project would take around four years to go on stream. Lanco Infratech declined 2.96% to close at Rs18.05 on the NSE.

Cummins India’s net profit for the quarter ended 30 June 2011 jumped 26.34% to Rs177.17 crore compared to Rs140.23 crore in the corresponding quarter last year. Total income grew by 13.18% to Rs1061.16 crore for the quarter under review from Rs937.59 crore in the year-ago period. The stock rose 0.29% at Rs612 on the NSE.

FMCG major Jyothy Laboratories (JLL) today said it had acquired an additional 1.76% stake in Henkel India, increasing its total shareholding in the company to over 71.6%.The price paid for the acquisition was lower than the average price of Rs40.68 per share that the company paid other shareholders in its recently concluded open offer. The scrip closed at Rs232.05, down 1.80%.


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