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.