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Don’t get fooled by private banks

Once upon a time, one associated manipulation of interest rates and similar machinations with the private moneylender. Today, such unfair trade practices have become the forte of banks, particularly private banks. Take, for example, this complaint that came up before the Banking Ombudsman.

india Updated: Apr 18, 2010 00:39 IST

Once upon a time, one associated manipulation of interest rates and similar machinations with the private moneylender.

Today, such unfair trade practices have become the forte of banks, particularly private banks. Take, for example, this complaint that came up before the Banking Ombudsman.

The consumer availed of a housing loan of Rs 3.4 lakh at a fixed rate of interest of 8 per cent per annum. He soon found to his dismay that in the bank’s lexicon the words ‘fixed rate of interest’ had an entirely different meaning. Because it increased the rate of interest to a whopping 12.75 per cent.

When questioned by the Ombudsman, the bank gave its own version of a ‘fixed rate’.

As per this definition, a fixed rate meant an upward revision in the interest at the end of every two years, even if it ran contrary to the terms of agreement with the consumer!

Finally, the bank agreed to refund the excess interest of Rs 17,936 charged from the consumer, but that was not the end of the story.

It argued that in future the revised interest rate would be applicable and if the consumer was unhappy with it, he had an exit option.

The Ombudsman pointed out that if the interest rates were subject to periodical changes, it should have been stated explicitly in the loan agreement and the sanction letter.

This was not the case here.

Besides, in choosing to provide a loan at a fixed rate of interest, the bank had consciously decided to carry the interest rate risk associated with the product.

As a result of this risk, the loan also carried a higher interest rate compared to a floating rate product. So, the bank had to strictly abide by the terms and conditions of the original arrangement and not give effect to any increase in the rate of interest , the Ombudsman said.

Banks cannot deviate from the terms and conditions mentioned in the loan agreement.

Question by Mr J.N.Prasad: I availed a personal loan of Rs 3,00,000 in December 2008. During the sanction of the loan in November, I told the bank’s field officer the EMI at Rs 9,538 per month was on a higher side as other banks were charging Rs 9,000. His response was I would get Rs 6,000 back after every 12 EMIs as the bank offered a 'cash back' scheme . However, after 12 EMIs, I was told I wasn’t entitled to it. I have paid all installments regularly, except in April, when because of the network congestion in the bank in which I have my salary account, my salary was credited late and this delayed the payment. The bank now says I can’t get Rs 6,000 because of the delay. I wasn’t told about such as term. Nor is it mentioned in the two sanction letters sent by the bank.

Answer: Having failed to mention any such terms and conditions, the bank now cannot use them to deny the money due to you. If prompt payment was a component of the 'cash back' scheme, it should have been stated in the letter. So please write to the nodal officer of the bank and also forward a copy to the Reserve Bank complaint cell on the RBI website. If the money is not paid within 15 days, lodge a complaint with the Banking Ombudsman. (ww.bankingombudsman.rbi.org.in)

Do you have any problems? Send in your queries to pgirimaji@gmail.com