RBI has already prohibited banks from charging penalty for prepayment of home loans and now the same has been extended to individual term loans
The Reserve Bank of India (RBI), on Wednesday said that banks should allow customers to prepay floating rate term loans without any penalty.
“It is advised that banks will not be permitted to charge foreclosure charges/ pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect,” the RBI said in a statement.
The central bank in its first bi-monthly policy on 1 April 2014 had said that banks should also not take undue advantage of customer difficulty or inattention. "In the interest of their consumers, banks should consider allowing their borrowers the possibility of prepaying floating rate term loans without any penalty," RBI had said.
RBI also said that in the interest of their customers, banks should consider allowing their borrowers the possibility of prepaying floating rate term loans without any penalty. RBI has already prohibited charging of penalty for prepayment of housing loans of individual customers, and wanted to extend the same benefit to all type of floating rate term loans, which will help small and medium enterprises as well.
Customers tend to pre-pay their term loans when they find that interest rates have risen. Some customers foreclose their loans with existing banks by switching to banks who offer loans at lower rates.
Earlier in June 2012, the RBI had asked commercial banks to stop levying penalty on pre- payment of home loans on floating interest rates. "Removal of foreclosure charges or pre-payment penalty on home loans will lead to reduction in the discrimination between existing and new borrowers and competition among banks will result in finer pricing of the floating rate home loans," the central bank had said.
RBI in its monetary policy for 2012-13 had proposed that banks should not be permitted to levy such charges with a view to bring uniformity across the banking system in the home loan segment.
The committee on Customer Services in Banks under M Damodaran had expressed that foreclosure of charges levied by banks on prepayment of home loans was resented upon by home loan borrowers and the banks were hesitant in passing on the benefit of lower interest rates to existing borrowers in a falling interest rate scenario.
We have a long way to go before financial consumers feel safe
Consumers International (CI), a global network of 240 consumer organisations, has decided on four key areas of financial consumer protection (FCP) that will be the focus of its consumer advocacy in the coming year. CI will campaign to place FCP on the agenda of the G20 nations, and also work at influencing recommendations of Financial Stability Board (FSB) and OECD. These four areas are: action to prevent abusive financial products and practices; promotion of competition in financial services; measures to tackle consumer debt and consumer access to basic products.
Where does India figure in all this? And what is the attitude of our regulators to the concerns of global consumers of financial products? Probably, for the first time ever in the 25 years since SEBI came into existence, the Sensex is scaling new, all-time highs but the majority of Indians are completely uninterested.
The same is true of insurance where, too, the regulator does not seem to understand that keeping the faith of consumers must be a priority. As far as the Reserve Bank of India (RBI) is concerned, there is now an inclination to work at a comprehensive consumer protection framework, but RBI still has no formal engagement with consumers. The top brass at the banking regulator believes that the many complaints it receives everyday gives it a fair idea of consumer grievances. We beg to differ.
Most consumers articulate their issues poorly and are unable to place them appropriately in the context of a regulatory or consumer protection framework. That is why an NGO like Disha Financial Counselling is required to guide people correctly. More important, the availability and willingness of banks to provide basic banking services, which the RBI governor mentioned recently, will be the key to financial inclusion in India, along with a focus on ensuring safer mobile payments, which is also a global concern. (Moneylife Foundation, of which this writer is a founder trustee, is a supporter-member of CI.)
In an eight-year-old case, the National Comsumer Forum, while allowing additional payment as per surveyor report, said, the complainant did not claim total loss and hence the insurer cannot be forced to pay full compensation
The National Consumer Disputes Redressal Commission (NCDRC) has asked National Insurance Co Ltd to pay Rs1.85 lakh with an additional amount of Rs50,000 to a vehicle owner whose vehicle was damaged in a accident about nine years ago.
“It would be appropriate to allow Rs50,000 in addition to the amount awarded by the State Commission, which will meet expenses to be incurred on repairs and replacement of parts (of the vehicle),” the National Consumer Forum said in its order on 17 April 2014.
The case relates to Sawada (Dist Jalgaon, Maharashtra)-based Ismail Khan Amir Khan, whose insured vehicle (Matador) met with an accident on 26 June 2005. As National Insurance Co did not settle his claims for the damage of Matador, Khan filed a case before the Jalgaon District Consumer Forum.
In its order, the District Forum while allowing the complaint directed the insurer to pay Rs4.5 lakh along with interest and also pay additional Rs2,000 for mental agony to Khan.
Aggrieved by this order, National Insurance filed an appeal before the State Commission stating that the complainant (Khan) has not pleaded that it was a case of total loss. The State Commission, while partly allowing the insurer's appeal, reduced the compensation to Rs1.85 lakh from Rs 4.5 lakh.
Khan then approached the NCDRC seeking restoration of order issued by the District Forum. He said, “The District Forum rightly allowed compensation, but the State Commission committed error in reducing compensation, hence revision petition be allowed and impugned order be set aside.”
During the hearing, the NCDRC reviewed report submitted by the surveyors, who after assessment gave the estimate of Rs50,000 for the vehicle loss. “Perusal of spot survey and surveyors report reveals some discrepancies. Without opening vehicle and these assembly items, surveyor rightly did not assess loss, but it can be presumed that some loss must have been caused to these items. In such circumstances, it would be appropriate to allow Rs50,000 in addition to amount awarded by the State Commission, which will meet expenses to be incurred on repairs and replacement of parts, which have not been dismantled and surveyor have kept them open for assessment,” the Forum said.
While sustaining the order issued by the State Commission, the NCDRC said, “As far as total loss of the vehicle is concerned, complainant has not pleaded in the complaint that it was the case of total loss and in such circumstances, total loss of the vehicle can not be inferred. The District Forum committed an error in allowing Rs4.5 lakh on the basis of total loss.”
The National Consumer Forum, however, asked National Insurance to pay additional Rs50,000 for the vehicle loss as per surveyor report to Khan.
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION - NEW DELHI
Revision Petition no. 1239 of 2012
Petitioner : Ismail Khan Amir Khan
Respondents : National Insurance Co Ltd
Saibaba Market, IInd Floor, At post Jalgaon,
District Jalgaon (Maharashtra)