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Borrower shouldn’t be penalised for pre-payment of loan: RBI

“In a floating rate contract, the borrower bears the complete interest risks and cannot be asked for compensation if he decides to pre-pay. On the other hand, in a fixed rate contract, the lender is committing resources, and then there is some legitimacy in asking for compensation,” deputy governor Subir Gokarn opined

Mumbai: The Reserve Bank of India (RBI) on Wednesday echoed ombudsmen’s views that banks need to do away with pre-payments charges on floating rate loans, saying the interest risk is completely borne by borrowers, reports PTI.

“In a floating rate contract, the borrower bears the complete interest risks and cannot be asked for compensation if he decides to pre-pay. On the other hand, in a fixed rate contract, the lender is committing resources, and then there is some legitimacy in asking for compensation,” deputy governor Subir Gokarn told reporters on the sidelines of a FICCI event here.

On Tuesday, the banking ombudsmen had suggested that banks need not impose any charges for pre-paying loans taken under floating rates by customers.

Many banks charge a pre-payment penalty ranging from 2% to 3% if a borrower chooses to pre-pay personal or home loan, irrespective of the nature of the loan contract-floating or fixed rate loans, citing as part of their cost of servicing their own loans.

“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,” the ombudsmen noted.

The banks will, however, be free to recover or charge appropriate pre-payment penalties in the case of fixed rate loans, the 10 action points to improve customer service said.

The banking ombudsmen met at the RBI on Tuesday along with Indian Banks’ Association (IBA) representatives.

Though the suggestion of the banking ombudsmen are morally suggestive in nature, it is generally accepted by the banks. Technically speaking, their suggestions have to be followed up by a circular from the RBI.

In his inaugural remarks governor D Subbarao had said “often, prevention was better than cure. In customer service area too, rendering good customer service was like ‘prevention’ and was better than the ‘cure’ which was the various grievances redressal mechanisms.”

Minister of state for finance Namo Narain Meena in a written response in the Rajya Sabha too had said that the government in May 2010, had advised PSBs, IBA and National Housing Bank that no pre-payment charges may be levied by the lending institutions when the loan amount is paid by borrowers out of their own funds.

State run banks like SBI claim that they do not levy any pre-payment charges if the pre-payment is paid by the borrowers from own sources, and not re-financed by another lender.

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HC nod for Uninor rights issue; arbitration simultaneously

The court also said that the foreign partner and the domestic partner will continue the arbitration process to resolve the difference between the two over the rights issue

New Delhi: Norwegian telecom giant Telenor, a majority shareholder in Uninor, today said the Punjab and Haryana High Court has given its approval to the company for proceeding with the Rs6,500-crore rights issue.

The court also said that the foreign partner and the domestic partner will continue the arbitration process to resolve the difference between the two over the rights issue.

The issuance of shares will be subject to the outcome in arbitration proceedings, sources said.

Telenor Group holds 67.25% in Uninor and Unitech Group has 32.75%. Uninor operates in 13 circles. The company had procured pan-India licence in 2008. The company is being probed by the CBI as part of the 2G scam investigation for irregularities.

“The Punjab and Haryana High Court’s decision on 26th August cleared the way for Uninor to proceed with the rights issue. We welcome this decision as Uninor will be able to raise additional funding from both its shareholders while the arbitration process continues.

“Uninor will continue its efforts to implement its board's decision and proceed towards a rights issue to secure long-term funding for the company,” Telenor spokesperson Glenn Mandelid said.

Earlier, Unitech Wireless board, which operates under Uninor brand name, had decided to go for the right issue to raise up to Rs6,500 crore for the funding. It was challenged by the real-estate company Unitech in the District court of Gurgaon, which stayed the process.

Telenor challenged the stay in the Punjab and Haryana High Court which also decided to continue with the stay.

Telenor than challenged the stay in Supreme Court which directed Punjab and Haryana High Court to review the case, which now has cleared the way for Uninor to proceed with the right issue.

“We received the court order on 2nd September,” Mr Mandelid said.

Uninor holds a pan-India UAS licence to offer mobile telephony services in each of India’s 22 circles. It is yet to receive spectrum in some circles, including Delhi, J&K, Rajasthan, Assam and the North-East.

Uninor services are available in the 13 circles of UP (West), UP (East), Bihar, Orissa, Kolkata, West Bengal, Tamil Nadu, Karnataka, Kerala, Andhra Pradesh, Mumbai, Maharashtra and Gujarat.

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