When Banking Ombudsman cites 'service gesture' from bank to dismiss customer complaint
Moneylife Digital Team 15 May 2018
In another example of callous handling of customer complaints, the Banking Ombudsman (BO) at Chennai dismissed a complaint from a borrower who did not get the benefit of a reduction in a ‘floating’ rate loan for over two years, while the rate had dropped from 15.60% to 9.65%. When the rate was eventually reduced on 1 April 2018, the lender, Citibank, called it a 'service gesture’ and the Banking Ombudsman agreed that this is good enough and dismissed the complaint. This means that the customer gets no respite or adjustment after having paid higher interest rates for two years after the marginal cost of funds based lending rate (MCLR) was introduced. The customer has been paying an interest rate of 15.60% in a scenario where rates are falling. The Bank has offered to reduce it to 9.65% from April 2018.  
In its communication on 3 May 2018, the BO says, "The Bank vide its letter dated 21 March 2018 confirmed that as a service gesture, they had taken a decision to revise the rate of interest from 15.60% to 9.65% from 1 April 2018 and the same was notified to you. In view of this, no further action against the bank is necessary and your complaint has been treated as dealt with and closed under Clause 11(3) of the BO Scheme."
The Ombudsman, which is highest forum in banking to provide justice or grievance redressal to a customer, then dismissed the complaint without taking any action against Citibank for extracting higher interest rates over the years.
This clearly shows that the higher rate of interest the Bank was charging for almost two years or 24 months even after introduction of MCLR and had offered to reduce it substantially (5.95%) only after complaint by the customer. Unfortunately, this also means the customer will end up paying over Rs10 lakh, as outstanding shown by bank despite its failure to reduce interest rates on his loans. 
Chennai-based Kumar Srinivas (name changed) had obtained two loans of Rs19.95 lakh from CITI Financial Consumer Finance India Ltd during December 2007 at a rate of 15% per annum. However, within seven month after availing the loan, the rate of interest was increased to 16.5% from 15%. The Company, without altering equated monthly instalment (EMI) amount extended loan repayment tenure to 173 months from 144 months as mentioned in the loan agreement.
For both the accounts, Srinivas continued to pay EMIs till November 2017. In these 10 years, he repaid Rs29,943 per month or Rs35.63 lakh for 119 EMIs. 
In the meantime, Citi Financial Consumer Finance, which became Citicorp Finance India Ltd, assigned Srinivas' two loan accounts to Citibank NA during in November 2015. He was told by the Bank that the internal prime lending rate of Citicorp Finance would be lined with applicable Citibank Mortgage Prime Rate (CMPR). 
The communication from Citibank says, "...as and when there is a change of interest, the first adjustment is made to the tenor of the loan, if the same does not fit our credit acceptance parameters, a change will be made to EMI amount."
This communication also claims that interest rate for the loans taken by Srinivas was reduced to 15.80% in October 2017 from 16.40% in December 2015.
In 2016, the Reserve Bank of India (RBI) introduced MCLR and asked all banks to inform their borrowers to change link interest rates to this new parameter without any additional cost. 
The Citibank communication says, "We confirm that the Bank has confirmed that for all loans booked prior to April 2016, as part of the repricing letters sent, the Bank had advised the option to convert to MCLR without any additional cost. In addition, a one-time communication was sent in November 2017 providing further details on the conversion along with an illustrative example on the effect of the conversion. However, we have not received any request from your end of conversion."
What has happened was after receiving communication from Citibank on outstanding amount Srinivas started communicating with them. It is where he found that the bank had never reduced interest rates on his loan despite reduction in monetary policy rates by the RBI. He says, "I have reworked my loan repayment chart applying reduction in rate of interest as announced by the RBI, keeping the margin for Bank as constant throughout. That is difference between RBI prime lending rates (PLR) prevailing on date of availment of loan to agree rate of interest at 15%, from time to time and I found that I have completed my entire loan in 112 months itself and seven EMIs of Rs29943 per month have been paid by me in excess for which I am entitled to get a refund of Rs2.10 lakh from them."
Since as per his calculation, his loan was repaid, Srinivas did not pay EMIs from December 2017 onwards, but paid Rs9230 or 30% of the EMI amount to make sure that his action does not fall under wilful default.
However, the Bank considers this as default. "We clarify that we are not in receipt of the EMI payment towards the loan accounts since December 2017. As on date, there is an overdue amount of Rs23,190 on loan ending 017 and Rs66,639 on loan ending 018. As on date, there is a net outstanding of Rs3.08 lakh and Rs8.92 lakh on both the loan accounts," the Bank says.
Satyam Savla
5 years ago
Wish I could post screenshots of a similar case of mine where HDFC bank ripped me and lots of other borrowers too by firstly not informing about changes in interest regimes (BPLR to Base Rate and then to MCLR) by using a clause that says it's the responsibility of the borrower to check with the bank on interest rate changes although RBI circular mentioned the word 'Reset' and ' borrowers consent' leading to 10 extra EMI's after the reduction. Also the drop off interest rate when I asked for it was termed as 'bank has demonstrated it's goodwill by reducing the rate when I asked for it'.
Replied to Satyam Savla comment 4 years ago
what you can do after when banking ombudsman does not provide you the benefit of change of bplr to mclr . can you go to a next step against banks policy , can you go to court againt bank for not provide the benefits of same. wht you do next against this case can you reply for this because banks also do same fraud with us and we recently know about this banking ombudsman also does not helps me, kindly can you helps me by providing the details what you do next.
Sairam Maganty
5 years ago
The survival of all the banks depends on CASA -Current Account Savings Account, funds.CASA funds constitute about 45% to 50% of funds of any bank. All banks fleece savings account customers and customers of current accounts belonging to micro, small and medium enterprises customers . The illegally earned profits have been shared between top management of banks and multi billion industrialists like Vijay Malyas, Ambanis, Adanis, Birlas, Jai Shaw, and the like. The governments instead of criminally punishing top managementsof erring banks, protect them.
Biswajit Banerjee
5 years ago
As is understood from the article that client in this case availed loan from a NBFC (where MCLR is not applicable.). Later the loan was assigned by NBFC to its parent company I.e. Citi Bank.
Unfortunately, assignment does not entail the borrower to claim rights otherwise available to the bank customers. The contract in this case remained between borrower and NBFC only and thus it would be unfair to take a stand on Ombudsman based on limited facts of the instant case.
One should be cautious before availing credit facility from NBFC.
K S Jegannathan
5 years ago
I also had experience with SBI regarding PPF. These days we can pay PPF in any branch of SBI. However, when I went to a branch they refused to accept citing flimsy reasons. Ironically, past two years I was paying in the same branch. After much dithering, they accepted the payment by cheque. When I went to collect the Challan after few days, the lady staff warned me not come to the branch in future for payment of PPF and that I have to pay at the branch in which the original account was opened. I wrote an email letter to the Branch Manager with copies to the concerned officials but there was no action whatsoever. Despite, anywhere banking etc. SBI continues to hold the monopoly on PPF. When at a time RBI is contemplating bank account portability this remains strange.
Gopalakrishnan T V
5 years ago
The approach that Customer is king and he is always right and he needs to be well taken care of, has been well brought out in the article and is well taken. But as far as banks are concerned there has to be a clear cut distinction between deposit customers and borrower customers. While the deposit customers who provide the life line to banks needs special attention and excellent serivce from banks , the same cannot be expected by all borrowers as most of the banks are put into losses because of bad borrowers and failure of the borrowers to comply with the terms and conditions set by the banks to avail of loans. The retail borrowers no doubt often get an illtreatmment from banks even though they are honest and prompt in the repayment of the loans and herein comes the banking Ombudsman to come to the rescue of such borrowers. But in the case cited in the article, the bank cannot be said to be fully at fault perhaps as the borrowers has availed of two sets of loans ie one from the NBFC of City Bank and one from the Bank itself. While the Ombudsman can help the borrower for all his bank loans the same cannot be expected of the loans from the NBFCs. Even the bank loans , the customer is expected to fully comply with the terms and conditions of the loan to enjoy the concessions and reliefs based on RBI directives if any on the rates of interest and other parameters. In the absence of the full details of loans and the terms and conditions set by the bank to the Customer, one cannot come to the Conclusion that the ombudsman's decision is against the customer's interest. It is for the bank and the Customer to have sorted out the issues amicably as the Customer seems to have misunderstood about the applicability of lower interest rates without fully satisfying all the terms and conditions in letter and spirit while operating the loan account. The bank also seems to have failed to guide the customer on the differences between bank loans and NBFC loans and the need to fully comply with the terms and conditions of the loans to enjoy the reliefs and concessions if any unless otheriwse specified elsewhere.
Mahesh S Bhatt
5 years ago
Crap American Senseless Capital Terror Mahesh Bhatt
5 years ago
In 2007 it was a NBFC loan for which MCLR is not applicable. MCLR was introduced for banks as per the article in 2016. Not know if reduced rate of interest is sought from 2007. If so can BO be held responsible?
Vaibhav Dhoka
5 years ago
The fact is quasi judicial posts are created to give early and timely resolution of grievance which is cost effective but most of the times these officials fail to act and thus become burden on state exchequer.
Sunil Prakash
5 years ago
In our country rules are made to be moulded as per own convenience. there is no fear as there is no-will to punish. till such time we become committed to our job, nothing will move. all will go as per convenience of the officer. All officers are hand in glove. The final issue comes to consumer whether official or un official.
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