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Taking a home loan? Read the fine print

delhi Updated: Aug 19, 2012 00:48 IST
Pushpa Girimaji
Pushpa Girimaji

If you look carefully at the standard contract that the banks ask you to sign when they give you a home loan, you will notice several clauses that are unfair to you. Or to put it differently, the terms and conditions are meant to protect the bank's interest fully in any eventuality.

Yet, there are instances when banks blatantly violate these terms, forcing the consumer to seek the help of the consumer court or the banking ombudsman.

A case decided by the apex consumer court in January this year is a case in point. Interestingly, the complainant was a former employee of the bank, who had taken a home loan.

When he opted for a premature retirement, the bank got him to sign an agreement converting the loan into a regular home loan with commercial rate of interest, subject to periodic revision depending on the market rates.

And as per the prevailing rate at that time, the interest payable was 13 per cent. In 2004, when the interest rates came down to 8.25%, the complainant sought a downward revision of the interest rate and after a prolonged correspondence lasting almost a year, the bank agreed to do so and accordingly reworked the EMI.

Then suddenly in 2006, the bank informed him that his interest rate could not have been changed from 13 per cent and that he had to pay R53,640 towards the difference in interest payable by him.

When questioned by the consumer court, the bank argued that the terms of the loan stipulated a 'fixed rate' of interest, which could only be revised upwards! Pointing out that if the interest could be revised upwards, it was not a fixed rate and could be brought down too, the National Consumer Disputes Redressal Commission held that the bank was not justified in charging a fixed rate in violation of the terms of the agreement.

It, therefore, upheld the verdict of the lower consumer courts directing the bank to charge only the floating rate of interest (and not 13%), refund Rs 53,640 to the consumer and pay Rs 5,000 as compensation and also pay costs. (State Bank of India Vs Shri NK Sharma, RP No 4403 of 2010, decided on January 4, 2012)

Here is another example of such arbitrary and unfair behaviour, in violation of the terms of the contract:

Dr Mahesh Kumar: My Home loan started in Dec 2005 at a fixed rate of interest of 7.75%, with the condition that it would be revised every third year as per the prevailing interest rates and I would be given notice of such a change with an option to terminate the loan account. In December 2008, the bank revised the rate to 8.5%, but without any prior intimation. Then in November 2011 (just a month prior to the next revision), I got a letter from the bank saying that they had charged me at the rate of 8.5% from 2008, while they should have charged 12% and therefore I owe them Rs 73,000. And they have now added this accumulated interest to my principal and charging interest on this too. What do I do?

Having revised the rate of interest to 8.5% in 2008, the bank cannot now, after three years, impose a higher rate of interest retrospectively. Nor can it violate the terms of the loan agreement.

Write to the nodal officer of the bank immediately. If he does not resolve the issue satisfactorily, send a complaint to the Banking Ombudsman (www.bankingombudsman.rbi.org.in). You can complain online. You also have the option of going to the consumer court, but you cannot go to both the forums simultaneously.