Tuesday, 30 September 2014

Second Communication to RBI date Sept 30 2014 -Floating interest rate not reducing automatically in loan accounts

Below shown is the my Second Communication to RBI date Sept 30 2014 -Floating interest rate not reducing automatically in loan accounts. This is the reply to communication from RBI.

Dear Sirs,
    Thanks for acknowledging my complaint. I would like to pin point a particular line of text on the circlular Interest Rates on Advances DBOD No.Dir.BC.13/13.03.000/2014-15 dated July 01, 2014. I have highlighed it in yellow .Here it says in case of existing loans banks should take consent of concerned borrower to reset the floating rates. In reality what happens is floating rate of loan goes up irrespective of borrower consent. But to bring it low borrower should write a written consent.  This isnt fair..right?

In my particular case. My loan account with number 0000006705******* (State Bank of Travancore, Branch: ****************) had a floating interest rate of  10% on 9th May 2007 (Starting of loan). Later the rate changed to 12.75% automatically. Later when i happened to walk in to branch around mid 2014 i submit a written request to bring it back to 10.25%.
My question is if floating interest rate goes up automatically, why cant it goes down automatically too?  Isnt it cheating by all Banks making use of the highlighted clause (that too technically incorrect manner)? Any common man who have dealt with loans with banks has faced this issue. May be banks cover it legally from terms sheet which we sign at the time of taking a loan.
The result is Banks loot crores of Rupees additional from loan borrowers even if the standard floating interest rates is revised and not getting reflected on individual loan accounts.

Please take this matter seriously and let me know what RBI can do to prevent this. Do move this to higher authorities, who can take a call on this.  If you want me to submit / do anything else am happy to help you. If you want me to come over and present my case i can do that too.

Ajith George

Co-Founder & COO

Reference: (Circlular Interest Rates on Advances DBOD No.Dir.BC.13/13.03.000/2014-15 dated July 01, 2014)

2.4 Floating Rate of Interest on Loans
Banks have the freedom to offer all categories of loans on fixed or floating rates, subject to conformity to their Asset-Liability Management (ALM) guidelines. The methodology of computing the floating rates should be objective, transparent and mutually acceptable to counter parties. The Base Rate could also serve as the reference benchmark rate for floating rate loan products, apart from external market benchmark rates. The floating interest rate based on external benchmarks should, however, be equal to or above the Base Rate at the time of sanction or renewal. This methodology should be adopted for all new loans. In the case of existing loans of longer / fixed tenure, banks should reset the floating rates according to the above method at the time of review or renewal of loan accounts, after obtaining the consent of the concerned borrower/s.

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