The apex bank has spoken on behalf of home loan customers on various irksome practices followed by Indian lenders
In June 2010, the Reserve Bank of India (RBI) constituted a Committee under the chairmanship of M Damodaran (former chairman, Securities and Exchange Board of India) to review the system of customer services in banks and to recommend measures for effective resolution of customer grievances. In addition to taking feedback from banks, the committee also sought inputs from other stakeholders, including members of the public, bank customers, academicians, consumer organisations and NGOs. Recently, the committee released its report on customer service in banks. In preparing this report, RBI studied customer care and protection measures available in developed economies as well as prevalent international best practices in banking.
Amongst other customercentric issues in banking services, the report also highlights key concerns of the average customer with respect to home loans: Foreclosure charges that are levied by some banks on prepayment of home loans are resented by many borrowers. As a practice, foreclosure charges work to deter borrowers from switching over to a competitor bank which is offering a lower interest rate to new customers. In this report, RBI observes that banks should not impose exorbitant penal rates towards foreclosure of home loans. Rather, a policy should be devised to help customers enjoy the benefits of market competition where they can exercise choices that contribute to their economic welfare.
Customers who have opted for home loans with floating interest rate often feel they are `discrimiated against' as their banks offer lower interest rates to new clients.
In this report, RBI has observed that a customer's `point of entry in time' should not matter when such loans are taken on a floating rate basis. The report recommends initiating measures to stop such practices that discriminate between new and old customers having identical characteristics and risk profiles.
The report recommends that customers should be given the option to switch over from fixed interest rate to floating interest rate and vice versa for their home loans. This option should be offered to customers at least once during the loan tenure. Also, the fee charged by banks for such a switchover should be appropriate and reasonable.
Unfortunate cases abound where title deeds of the mortgaged property deposited by the customer with the bank are lost and, thus, not returned to them at the time of full repayment of loan amount. The report suggests that title deeds deposited by the bank should be returned to customers within a period of 15 days from the loan closure. Also, banks should have a policy in place to compensate customers in case of loss of title deeds kept in the bank's custody as well as compensate for delayed return of title deeds to the customer.
Home loans that are backed by insurance products should be automatically settled by the insurance amount, with minimum inconvenience caused to nominees and heirs of the customer.
The report states that banks should automatically provide annual account statements (which contain details of payment made towards principal towards principal and interest including principal outstanding) to home loan customers without them having to request the bank for the same.
The report also suggests that the most important terms and conditions of home loans should be clearly and legibly stated for the benefit of customers. Also, home loan documents should be made available to customers in local languages.
The report observes that explicit rules and regulations should be put in place which can help correct these existing anomalies. The report is a step forward in raising awareness and generating discussion about market practices in the home loan sector which ought to be transparent, non-discriminatory and objective from the point of view of customers.
Such actions taken by banks can also help address many grievances, thereby greatly reducing the backlog of disputes pending in customer redressal forums.
The author is senior partner, ZEUS Law Associates, a corporate commercial law firm. One of its areas of specialisation is real estate transaction and litigation work.
