'Unfair' home loans under MRTPC lens
Banks that offer lower home loan rates to new customers while continuing to charge higher rates from existing customers have come under the regulatory scanner.
By Gireesh Chandra Prasad, TNN |
NEW DELHI: Banks that offer lower home loan rates to new customers while continuing to charge higher rates from existing customers have come under the regulatory scanner.
The Monopolies and Restrictive Trade Practices Commission (MRTPC) has ordered an investigation into the non-transparent way in which banks compute interest rates on home loans and how they discriminate between new and existing customers. Taking cognisance of media reports, the commission has asked its investigation wing — the director general of investigation and registration (DGIR) — to probe the alleged unfair pricing practices adopted by banks, particularly for home loans.
According to reports, banks follow an internally computed reference rate to determine interest rates rather than an external market-linked one. Therefore, a person opting for a floating rate — believing that his interest burden would ease if the cost of funds falls — is deprived of the benefit.
Many banks are swift in raising interest rates whenever there is a slight increase in the cost of funds. At the same time, they wait for a considerable fall in the cost of funds before slashing interest rates by a small fraction. It has been alleged that banks readily reduce rates while negotiating with new customers to beat competition from rivals.
Existing customers are often left out from such interest rate cuts. The regulator has excluded pre-closure penalty from the scope of the probe as it believes that banks have a genuine difficulty when funds allocated over a long period are paid back prematurely. Besides, some banks even reset the fixed interest rate under a provision. This fact is often not properly communicated to customers at the time of selling the loan. DGIR usually completes its investigations in two months.
The probe comes at a time when existing consumers are feeling the pinch from a sharp escalation in their interest burden. Inflation in cement and steel, too, have dealt a blow to new customers with real estate prices shooting up sharply.
The Monopolies and Restrictive Trade Practices Commission (MRTPC) has ordered an investigation into the non-transparent way in which banks compute interest rates on home loans and how they discriminate between new and existing customers. Taking cognisance of media reports, the commission has asked its investigation wing — the director general of investigation and registration (DGIR) — to probe the alleged unfair pricing practices adopted by banks, particularly for home loans.
According to reports, banks follow an internally computed reference rate to determine interest rates rather than an external market-linked one. Therefore, a person opting for a floating rate — believing that his interest burden would ease if the cost of funds falls — is deprived of the benefit.
Many banks are swift in raising interest rates whenever there is a slight increase in the cost of funds. At the same time, they wait for a considerable fall in the cost of funds before slashing interest rates by a small fraction. It has been alleged that banks readily reduce rates while negotiating with new customers to beat competition from rivals.
Existing customers are often left out from such interest rate cuts. The regulator has excluded pre-closure penalty from the scope of the probe as it believes that banks have a genuine difficulty when funds allocated over a long period are paid back prematurely. Besides, some banks even reset the fixed interest rate under a provision. This fact is often not properly communicated to customers at the time of selling the loan. DGIR usually completes its investigations in two months.
The probe comes at a time when existing consumers are feeling the pinch from a sharp escalation in their interest burden. Inflation in cement and steel, too, have dealt a blow to new customers with real estate prices shooting up sharply.
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