The Reserve Bank of India (RBI) has warned banks against taking customers for a ride by manipulating interest rates on floating rate loans. The regulator also wants them to voluntarily waive the prepayment penalty on home loans.
At the Annual Conference of Banking Ombudsmen, banks and RBI mutually agreed to ban prepayment fees on floating rate home loans as one of the 10-point action plan to improve customer services. Subsequently, banks made a representation to RBI against it. "Banks had agreed...now they have a problem. We are giving them some time but we are very clear that this 10-point action plan has to be implemented," KC Chakrabarty, deputy governor of RBI told media persons on Tuesday.
RBI governor D Subbarao also sounded the same note. "We will pursue with banks to do this (banning prepayments penalties) as soon as possible but should the system require time to adjust to this, we will be prepared to give them some time," he added.
State Bank of India and Axis Bank have stopped charging pre-payment fees. The issue has become controversial as many banks are charging as high as 2% of the outstanding loans if the borrower wants to repay before the due date.
Meanwhile, in the mid-year policy review, RBI has expressed its discomfort about old floating rate customers getting a raw deal while new customers are being offered a better rate, though both have received the same rating.
There are instances where the spread charged to a customer has been revised upward frequently during the tenure of the floating rate loan, it said in a statement.
"These have also resulted in a situation where existing customers are at a disadvantage, compared to new customers with the same credit rating, leading to customers complaining about discrimination," it said. This is particularly the case in home loans where banks kept offering attractive rates to new customers while old customers paid a higher rate.
In order to bring uniformity in differential rates, RBI said on Tuesday that it is setting up a working group which will look into the "principles governing proper, transparent and non-discriminatory pricing of credit."
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