We mentioned yesterday that a short rally is likely but the trend is down. Today the market opened positive but fell in the afternoon session. A close below 5,630 on the Nifty may lead to a short but sharp decline
When home loan interest rate is reduced, the benefits are passed on to new customers while an increase is applicable to all old customers. Why banks, lenders are allowed to indulge in this jugglery in the name of floating rate of interests?
Here comes the good news. But before you hear the good news, let me tell you there is an irony attached to this good news. The same news which is good for some prospective customers is bad for large number of existing customers. Three home loan players have reduced the rate of interest on their home loans but the reduced rates are applicable only for the new customers. These three institutions are ICICI, HDFC and Vijaya Bank. On 12 October 2012 these institutions announced a reduction in the rate of interest on home loans upto 1%. The reduced rate of interest is obviously meant to attract new customers on the occasion of forthcoming festival of Diwali when many customers decide to book home and go for home loans.
This move has once again raised the most perplexing question related to lending practices of banks, “Why is that when rate of interest is reduced on home loan, benefits are passed on to new customers only, while an increase in rate of interest is applicable to old customers?” Why are banks allowed to indulge in this jugglery in the name of floating rate of interests? Let us investigate this question in detail. Banks and financial institutions generally do not touch their BPLRs (Base Prime Lending Rates) and Bank Rate. These institutions only adjust the spread that they charge on home loans below PLRs and above Bank rates. So for example if the BPLR of a bank is 16% and it was providing a spread of PLR minus 5% for an existing customer, for new customers the rate is changed by keeping PLR at 16% but changing spread to 6% which automatically changes the rate for new customers. Similarly in case of Base Rate, the rate is kept unchanged and the spread charged over the base rate is adjusted.
Now let us look at reasons that banks often point out for doing this and not adjusting rate of interest for all customers. Though banks do not have a very tangible answer for this they try to provide some answer which sounds logically flawed but hardly draws the attention of the regulator i.e. Reserve Bank of India (RBI) .The most unacceptable logic given is that since the cost of borrowing for banks for existing customers is high, they cannot pass on the benefit of reduced rate to existing customers. Hence they make the benefit available to new customers. This logic seems totally flawed.
Let us analyse two different scenarios for understanding the logic extended by banks. Let us look at the practice being currently followed by HDFC, one of the leading players in home loan market. If you have a home loan from HDFC, the financial institution allows you the benefit of the new rate on interest by charging an amount which they call as “conversion fee”. So if you want the benefit of reduced rate of interest pay the conversion fee and get the benefit of reduced rate of interest, even as an existing customer. This amount depends on the home loan availed by you. The surprising thing here is that HDFC allows one to go for new rates multiple times as an existing customer by a paying conversion fee every time you want rate of interest to be changed on your loan. This shows that cost of borrowing has very little significance in policy-making and HDFC wants their existing customers to pay a fee post which they are ready to pass on the benefit of reduced rate of interest. The fee charged is not good enough to compensate the so called cost of borrowing. This shows that the practice followed is unethical and needs attention of the regulators.
But much more than this, what is unfair is the other practice followed by banks and financial institutions. If you have an existing loan from one bank and want to shift it to another bank which is offering lower rate of interest, you are entitled to get the benefit of a reduced rate of interest. So as a customer you again end up paying a processing fee and some costs attached to the paper work. This again shows that cost of borrowing has very little role to play in this. The processing fee is a nominal amount generally compared to the home loan amount.
These two practices followed by banks and financial institutions shows the unfair practices being followed by them which they do in the guise of pricing of products which seems to be the natural right of these institutions in absence of clear cut regulatory guidelines. While rate of interest on fixed rates, whether deposits or lending may remain same, it does not make sense to do the same on floating rates? But is the regulator listening?
Delhi resident Sunita Verma had alleged that her car, a Maruti Omni, bought on a loan from StanChart was taken away by the bank on default of payment and despite her paying the remaining amount the vehicle was sold
New Delhi: The State Consumer Commission has dismissed a plea filed Standard Chartered Bank (StanChart) against a district forum order asking the bank to pay Rs2.97 lakh to a loanee for seizing her car for non-payment of Rs30,000 and selling it despite subsequent payment of all dues by her, reports PTI.
The vehicle was sold after the borrower refused to take it back as its crucial parts had allegedly been removed, rendering the vehicle to a non-working condition.
The Delhi State Consumer Commission observed the woman's willingness to pay the remaining loan amount of Rs30,000 showed she was keen to take the car back and there must have been some compelling reason for her for not doing so.
"It appears that statement of respondent (loanee) that the vehicle was not in a condition for taking possession needs to be accepted. It is evident that on one hand the appellant bank (Standard Chartered) is entering into an arrangement to return the car on payment of Rs30,000 and on the other hand its officers allowed parts of the car to be removed which is a case of negligence and serious deficiency-in-service.
"We are of considered opinion that a case of deficiency in service is made out beyond doubt and to serve the ends of justice it would not be proper to interfere with the order of the district forum. The appeal is accordingly dismissed," the bench presided by Justice Barkat Ali Zaidi said.
In her complaint to the district forum, Delhi resident Sunita Verma had alleged that her car, a Maruti Omni, bought in August 2001 on a loan from the bank was taken away by it on default of payment and despite her paying the remaining amount the vehicle was sold.
While admitting that Verma had paid the remaining Rs30,000 to it, the Standard Chartered had alleged that the car was sold after she refused to take possession of it.
The district forum, however, had held the bank guilty of rendering deficient service and had directed it to refund her Rs2.37 lakh she had paid to clear her loan and also another sum of Rs60,000 as compensation and litigation cost.