State Consumer Disputes Redressal Commission
Prem Singh Badwal vs Icici Bank Ltd. on 2 June, 2017
STATE CONSUMER DISPUTES REDRESSAL COMMISSION,
PUNJAB, DAKSHIN MARG, SECTOR 37-A, CHANDIGARH.
First Appeal No.422 of 2016
Date of Institution: 01.06.2016
Date of Reserve : 19.05.2017
Date of Decision : 02.06.2017
1. Prem Singh Badwal son of Late Shri Piara Singh, resident of
H.No.565, Gali No.3, Guru Angad Nagar, Nawanshahr.
2. Surinder Kaur Badwal wife of Prem Singh Badwal, resident of
H.No.565, Gali No.3, Guru Angad Nagar, Nawanshahr.
......Appellants/Complainants
Versus
1. ICICI Bank Limited, Registered Office "Landmark" Race Course
Circle, Vadodra, 390007 through its Managing Director / Chief
Executive Officer.
2. ICICI Bank Limited, Banga Road, Nawanshahr, through its
Branch Manager.
.....Respondents/opposite parties
First Appeal against the order dated
04.05.2016 of the District Consumer
Disputes Redressal Forum, SBS Nagar.
Quorum:-
Hon'ble Mr. Justice Paramjeet Singh Dhaliwal, President
Mr. Harcharan Singh Guram, Member
Present:-
For the appellants : Sh.A.S.Gill, Advocate
For the respondents : Sh.Sandeep Suri, Advocate
HARCHARAN SINGH GURAM, MEMBER
The appellants / complainants (hereinafter referred to as 'complainants') have filed the present appeal against the order dated 04.05.2016 passed by District Consumer Disputes Redressal Forum, Shaheed Bhagat Singh Nagar (hereinafter referred to as 'District Forum') in Consumer Complaint No.103 dated 09.09.2015 vide which their complaint was dismissed.
2. Brief facts as stated in their complaint filed by Prem Singh Badwal son of Late Shri Piara Singh and Surinder Kaur Badwal wife of Prem Singh Badwal under Section 12 of the Consumer Protection Act (hereinafter referred to as 'the Act') against the opposite parties. First Appeal No.422 of 2016 2 As per the averments it is averred that on the allurement of the Branch Manager of opposite party No.2 they applied for a home loan, which was sanctioned to them for `10,00,000/- on 23.05.2005 to be paid in 141 monthly instalments of `11,741/- and the last instalment was to be paid on 07.04.2017. It was averred that complainant No.1 being principal borrower and complainant No.2 was taken as co- applicant. They were given to understand that there were no grey areas in the loan sanctioned to them. It was pleaded that repayment schedule was not provided at the time of disbursement of the loan but the same was provided in the year 2007. It has been pleaded that EMIs were paid religiously and diligently. When the complainant approached opposite party No.2 for foreclosure of their loan account then they were informed that their loan account could not be foreclosed by calculating the monthly instalments due upto 2017 but it needs to be calculated upto 2023. They were informed by the Bank that their account stands reworked by their Jalandhar Head Office and they would be required to pay the instalment upto 2023, if they desire to foreclose the loan account. The above information regarding their loan account provided by opposite party-Bank came as a shock to them. It was averred that no notice about the change in terms and conditions were ever conveyed to them by the opposite parties. They were not informed about the change in interest rates. Thus, the opposite parties were deficient in service and they gave representation to them to rectify the same. On failure to get any favourable response from them, they were left with no option but to file the consumer complaint in the District Forum and sought directions to be issued against the opposite parties; to set right their First Appeal No.422 of 2016 3 account as per repayment schedule provided to them; to pay damages of `1,00,000/- on account of causing mental agony and harassment and also to pay `25,000/- as legal costs.
3. Upon notice, opposite parties filed their reply and took preliminary objections that the present complaint was not maintainable. It was time barred. The complainants had availed a loan in the month of 2005 and the objection regarding the rate of interest was raised only in the year of 2015 i.e. after a delay of 10 years from the date of the sanction and disbursement of the loan; they have concealed the material facts from the Forum. The complainants availed home loan amounting to `10,00,000/- in the year of 2005. The said loan was initially repayable in 120 instalments of `11,741/- i.e. in 10 years. It was pleaded that the complainants opted for Floating Rate of interest. At that time, the rate of interest applicable was 7.25% per annum. The complainants after knowing the contents of the sanction letter and that of the credit facility application signed the same in token, only thereafter the said loan was disbursed to them. It was averred that with a view to ensure the transparency regarding loans, they introduced floating rate of interest for determining the rate of interest for loans sanctioned. It was averred that the borrowers availing loans at floating rate of interest were informed that the interest rate of their loans would be reset as and when FRR rates change. FRR is linked to cost of funds and appropriate cost of operation for the relevant period. The cost of funds is one of the component and any change in cost of funds would therefore, impact all the customers whose loans were linked to Floating Rate of Interest. The spread between FRR and the actual First Appeal No.422 of 2016 4 rate of interest as offered to the customers is called as margin. The appropriation of EMI would be towards interest and principle. It was averred that no excess interest was charged in their loan account. It is pleaded that FRR (Floating Rate of Return) since inception of the loan as per the table is mentioned below:-
FRR Policy Date Impact
9.25% 13/Feb/06 Increase By 0.50%
9.75% 08/May/06 Increase By 0.50%
10.25% 15/Jun/06 Increase By 0.50%
10.75% 18/Dec/06 Increase By 0.50%
11.75% 09/Feb/07 Increase By 1%
12.75% 31/Mar/07 Increase By 1%
13.50% 30/Jun/08 Increase By 0.75%
14.25% 31/Jul/08 Increase By 0.75 %
13.75% 31/Dec/08 Decrease By 0.50%
13.25% 22/Apr/09 Decrease By 0.50%
12.75% 04/Jun/09 Decrease By 0.50%
13.25% 18/Aug/10 Increase By 0.50%
13.75% 06/Dec/10 Increase By 0.50%
14.00% 03/Jan/11 Increase By 0.25%
14.50% 24/Feb/11 Increase By 0.50%
15.00% 07/May/11 Increase By 0.50%
15.25% 04/Jul/11 Increase By 0.25%
15.75% 13/Aug/11 Increase By 0.50%
15.50% 23/Apr/12 Decrease By 0.25%
15.75% 23/Aug/13 Increase By 0.25%
15.50% 10/Apr/15 Decrease By 0.25%
15.45% 26/Jun/15 Decrease By 0.05%
The loan account of the complainant was disbursed on floating rate of interest and whenever there would be increase or decrease in the rate of interest, reset letters were sent to the customers stating the change of EMI or tenure alongwith the change in the rate of interest. The copies of all the reset letters were sent to the complainants from time to time. These reset letters were again sent to them alongwith reply to their legal notice. It was averred that there was no unfair trade practice on its part or excessive rate of interest was charged by the Bank. However, no cause of action accrued to the complainants to file the present complaint against them. It was pleaded that the complainants were estopped by their own acts and First Appeal No.422 of 2016 5 conduct from filing the complaint. It was submitted that initially the complainants themselves opted for floating rate of interest, now raised the objection against the same after lapse of 10 years. On merits, it was admitted that complainants availed a loan of `10,00,000/- from them. They denied the averment that there was any allurement or concealment or inducement on their part. Rather, complainants themselves approached them for availing the Home Loan and after understanding the terms and conditions as mentioned in the sanction letter, availed the loan and executed the loan agreement. In addition to above, they have appended their signatures on the sanction letter annexed as a token of their acceptance to the terms and conditions. Only thereafter, the loan was availed by the complainants under Loan Account No.LBNWS00001066226. They denied the averment regarding repayment schedule was not provided. They averred that the same was provided to the complainants at the time of disbursement of loan. It was averred that the complainants were informed that they can close loan account at any time after paying all the dues to the Bank as mentioned in the Foreclosure letter. It was averred that the detailed reply given in the preliminary objections may kindly be read as part and parcel of their objections on merits and prayed that the complaint filed by the complainants be dismissed with heavy costs.
4. Both the sides produced evidence in support of their respective averments before the District Forum, which after going through the same and hearing learned counsel on their behalf dismissed the complaint, vide impugned order. Hence this appeal. First Appeal No.422 of 2016 6
5. We have heard the learned counsel for the parties, perused the grounds of appeal on behalf of the appellants/complainants and have carefully gone through the records of the case.
6. Counsel for the complainants argued that the order passed by the District Forum is wrong and illegal and is liable to be set aside. He argued that when the appellants approached to opposite party-Bank for foreclosure of their loan account, they were informed that the instalments which were earlier payable upto 07.04.2017 stands extended upto the year 2023. They were informed that their loan account was reworked by their Jalandhar Head Office. It was averred that opposite parties tendered their evidence vide Ex.OP-1 to Ex.OP-28. In these exhibits no copies of reset letters which were sent to the complainants find mention. He argued that no evidence in the shape of reset letters was produced in the District Forum by the opposite party-Bank but produced only the record of dispatch of these letters by way of electronic record as an additional evidence which was allowed by the District Forum. He further argued that an objection was raised before the District Forum that as per the zimni orders passed by the District Forum dated 03.03.2016, a direction was given to the opposite parties-Bank to bring on record the copies of the reset letters. However, the District Forum discarded complainants' averments about the copies of the reset letters which were not produced but electronic record of outward register was produced and prayed that the complaint be accepted as no notice was sent by the opposite parties regarding the change in interest rate applicable to their loan account. He argued that the District Forum First Appeal No.422 of 2016 7 wrongly gave a finding that the allegations of the complainants regarding non-maintenance of dispatch of reset letters were found as incorrect even though there was no record pertaining to reset letters was produced on the District Forum file but only copy of electronic mode of dispatch register was placed. The averments of opposite party-Bank were taken as a gospel truth by the District Forum in dismissing the complaint. He argued that in absence of reset letters and as per the directions given by the Reserve Bank of India to all the Commercial Banks regarding the interest rate on loan and advances. The opposite party-Bank was required to send reset letters as well as obtain their written consent at the time of affecting any change of interest applicable to their loan account. He further argued that Reserve Bank of India has abolished foreclosure charges for pre- payment of loans and in contravention of RBI directions the respondent/opposite party-Bank directed them to pay the foreclosure charges and issued a letter to that effect.
7. On the other hand, counsel for the respondents/opposite parties argued that the order passed by the District Forum is a well reasoned order and needs to be affirmed. However, during the course of arguments, a query was put to the counsel for the respondents/opposite parties that whether their Bank is required to follow the RBI Instructions or not? Whether their Bank were given any special status by the RBI that the instructions, notifications issued by the RBI under Banking Regulation Act are not applicable to them? To these queries, the counsel replied that the RBI has deregulated the interest rates on loans and advances to be advanced by the Commercial Banks above the threshold limit of `2,00,000/- and First Appeal No.422 of 2016 8 interest rate on the loans upto `2,00,000/- are being governed by the RBI. The interest rate to be charged on the loans above `2,00,000/- stands deregulated by the RBI. However, Managing Board of the Commercial Banks have been given powers to fix the interest rate at their own level, as such, the resetting of the floating rate was not under the purview of the RBI Guidelines or notifications and it is the prerogative of the respondent-Bank to charge the interest as per their own base rate/ cost of funds during the tenure of the loan account.
8. We have perused the loan agreement entered between the complainants and the Bank as placed on record. Ex.OP-15 relates to sanction letter. There is a black mark on this page and it is not clear as to what are the terms and conditions and on which date the loan was sanctioned. This sanction letter is signed by one Mr.Prabhat on behalf of ICICI Home Finance Company Limited and is accepted by the complainants and under their signatures the date is mentioned as 09.06.2005. In this sanction letter interest rate to be charged on their loan amount is mentioned as 7.25%. Instalment amount is shown as Rs.11,741/- and the tenure of the loan is shown as 120 months i.e. 10 years. Alongwith this sanction letter, terms and conditions, common to all customers has been appended as Ex.OP- 16 which did not have the signatures of the borrowers appended on it. However, Ex.OP-17 pertains to loan agreement and this loan agreement is signed upto 15 pages by the borrower and on page 16 of this document is shown as Ex.OP-18 pertaining to Schedule-B. This pertains to terms and conditions applicable to loan with adjustable interest rate. If we go through the definition appended on First Appeal No.422 of 2016 9 page 16, which is a continuing document of Ex.OP-17 though Ex.OP- 18, under Column definition Sub-Part 3 it is mentioned as under:-
"ICICI Bank Floating Reference Rate (FRR) shall mean the percentage rate per annum decided by ICICI bank from time to time and announced / notified by ICICI Bank in such form and manner as deemed appropriate by ICICI Bank from time to time as Floating Reference Rate."
From the perusal of this Section FRR rate will be decided by the ICICI Bank on annual basis. It provides that ICICI Floating Reference Rate i.e. (FRR) shall mean the percentage rate per annum decided by ICICI from time to time. This exhibit is counter signed by the complainant on page 16 to 20. This document shows that this document taken by the Bank duly signed and executed by the complainants on 09.06.2005.
9. Ex.OP-20 pertains to "Facility Agreement". On Page 1 of this document, on the very top of this agreement signatures of the complainant and his wife are appended.
10. From the perusal of this exhibit, we find that there are numerous material alterations and cuttings on page of this exhibit which have not been attested by the complainant and all the columns in this document are left blank and no official of the Bank has appended any signature on this document in lieu of acknowledging that this document was counter signed by the complainant as a subsequent agreement dated 10.04.2007. Even there is an alteration / cutting in the date which is shown as 19; also there is a First Appeal No.422 of 2016 10 cutting in the month which is over written as April instead of June and also in the year too, which is changed from five to seven. It appears that this document was taken as an additional document by the ICICI Bank from the complainants when they have availed the loan on 09.06.2005.
11. In order to find out whether this document is a genuine document or not we have perused the loan application form submitted by the complainants to ICICI Bank on 29.04.2005 placed on record in the District Forum file at Page No.263, where the age of complainant No.1 was shown as 49 years on the date when he applied the loan i.e. on 29.04.2005. We find that after availing the loan by the complainants on 29.04.2005 age of complainant stopped to increase as is evident from Ex.OP-23 pertaining to "Facility Agreement" i.e. on Page 4 pertaining to Schedule of the Facility Agreement the age of the complainant is shown as 49 years on 19.04.2007 though there are numerous material alterations and cuttings in this document. It appears that this document Ex.OP-23 is a tampered document as the age of the borrowers in loan application as well as in this exhibit is shown as 49 years. The said document has been manipulated from blank document, got signed from the complainant at the time of disbursement of loan on 29.04.2005. Majority of all the columns in Ex.OP-23 are blank which are not filled up and there are alterations on page No.4, Page No.7, Page No.8 and no other column in other pages are filled in this exhibit and even in Receipt for Tranche 1 on page No.16 of this document, it is kept blank and receipt for Tranche No.2 is also left blank, though the signatures of both the complainants are affixed on the blank receipts. First Appeal No.422 of 2016 11 Thus, this document cannot be taken as a valid document and the same being a tampered document is not enforceable against the complainants. The legal effect of material alterations is that it makes the document void. In other words, it discharges the instrument itself as against the complainant being party to it and have not given approval to it. The material alterations are without the consent of the complainants certainly reduce the value and utility of such documents.
12. In addition to above, Ex.OP-22 is a document in continuation of Ex.OP-20 which is to be considered as a materially altered document. On Ex.OP-22 starting from Page No.17 signatures of the complainant and his wife are appended. Thereafter except on Page 19, there are no signatures on Page 18 then from Pages 20 to Pages 40. Thereafter, Ex.OP-23 pertaining to Declaration and it is in continuation of Page 40 to Page 41. On this exhibit also, there are over writings, cuttings and alterations and Ex.OP-24 pertaining to Schedule of Property. On Page 44 there is a cutting and on page No.48 nobody had put any signatures nor name of the authorized officials of the Bank, nor the signature. It appears that it is a continuous document but was shown as segregated document and a different exhibit numbers were given. Ex.OP-20 is a one concise document, but the same has been segregated in order to derive undue benefit by the Bank, as major portion of this document is blank. We feel that this document was obtained from the complainant at the time of disbursement of initial loan on 09.06.2005. The legal effect of material alterations is that it makes the document void. In other words, it discharges the instrument itself as against the First Appeal No.422 of 2016 12 complainant being party to it and who have not given approval to it. The material alterations are without the consent of the complainants certainly reduce the value and utility of such documents.
13. The second point to be examined is whether the instructions, notifications and guidelines issued by the RBI can be avoided by the Commercial Bank. These instructions are usually issued under Banking Regulation Act, 1949.
14. In order to find out what are the exact guidelines of the RBI regarding charging of interest rate on loan and advances. We have downloaded Master Circular of RBI in our Commission. The same is appended below:-
RBI/2014-15/ 65 DBOD.No.Dir.BC.13/13.03.00/2014-15 July 1, 2014 Ashadha 10, 1936 (Saka) All Scheduled Commercial Banks (excluding RRBs) Dear Sir / Madam Master Circular - Interest Rates on Advances Please refer to the Master Circular DBOD.No.Dir.BC.15/13.03.00/2013-14 dated July 1, 2013 consolidating instructions / guidelines issued to banks till June 30, 2013 on matters relating to Interest Rates on Advances. The Master Circular has been suitably updated by incorporating instructions issued up to June 30, 2014 and has also been placed on the RBI website (http://www.rbi.org.in). A copy of the Master Circular is enclosed.
Yours faithfully (Lily Vadera) Chief General Manager Encl: as above CONTENTS Para No. Particulars Page No. First Appeal No.422 of 2016 13 A Purpose 1 B Classification 1 C Previous instructions 1 D Application 1 1 Introduction 2 2 Guidelines 3 2.1 General 3 2.2 Base Rate 3 2.3 Applicability of Base Rate 5 2.4 Floating Rate of Interest on Loans 8 2.5 Levying of penal rates of interest 8 2.6 Enabling clause in loan agreement 9 2.7 Withdrawals against uncleared effects 9 2.8 Loans under consortium arrangement 9 2.9 Charging of interest at monthly rests 10 Zero percent Interest Finance Schemes for 2.10 Consumer Durables 10 2.11 Excessive interest charged by banks 11 Illustrative Methodology for the Computation of Annex 1 the Base Rate 12 Guidelines on Benchmark Prime Lending Rate Annex 2 (BPLR) 14 up to June 30, applicable to loans sanctioned 2010 for all Rupee Annex 3 Interest Rate Structure Advances 18 including Term Loans of Commercial Banks sanctioned up to June 30, 2010 Appendix List of circulars consolidated 20 MASTER CIRCULAR ON INTEREST RATES ON ADVANCES A. Purpose To consolidate the directives on interest rates on advances issued by Reserve Bank of India from time to time.
B. Classification First Appeal No.422 of 2016 14 A statutory directive issued by the Reserve Bank in exercise of the powers conferred by the Banking Regulation Act, 1949.
C. Previous instructions This Master Circular consolidates and updates the instructions on the above subject contained in the circulars listed in Appendix.
D. Application To all scheduled commercial banks, excluding Regional Rural Banks.
Structure
1. Introduction
2. Guidelines 2.1 General 2.2 Base Rate 2.3 Applicability of Base Rate 2.4 Floating rate of interest on loans 2.5 Levying of penal rates of interest 2.6 Enabling clause in loan agreement 2.7 Withdrawals against uncleared effects 2.8 Loans under consortium arrangement 2.9 Charging of interest at monthly rests 2.10 Zero percent interest finance schemes for consumer durables 2.11 Excessive interest charged by banks Annex 1 Illustrative Methodology for the Computation of the Base Rate Annex 2 Guidelines on Benchmark Prime Lending Rate (BPLR) applicable to loans sanctioned up to June 30, 2010 Annex 3 Interest Rate Structure for all Rupee Advances including Term Loans of Commercial Banks sanctioned up to June 30, 2010 Appendix List of circulars consolidated Introduction 1.1 Reserve Bank of India began prescribing the minimum rate of interest on advances granted by Scheduled Commercial Banks with effect from October 1, 1960. Effective March 2, 1968, in place of minimum lending rate, the maximum lending rate to be charged by banks was introduced, which was rescinded with effect from January 21, 1970, when the prescription of minimum lending rate was reintroduced. The ceiling rate on advances to be charged by banks was again introduced effective March 15, 1976, and banks were also advised, for the first time, to charge interest on advances at periodic intervals, that is, at quarterly rests. In the following period, various sector-specific, programme-specific and purpose-specific interest rates were introduced.
1.2 Given the prevailing structure of lending rates of Scheduled Commercial Banks, as it had evolved over time, characterised by an excessive proliferation of rates, in September, 1990, a new structure of lending rates linking interest rates to the size of loan was prescribed which significantly reduced the multiplicity and complexity of interest rates. In the case of the First Appeal No.422 of 2016 15 Differential Rate of Interest Scheme under which credit was provided at a rate of 4.0 per cent per annum, and Export Credit, which was subject to an entirely different regime of lending rates supplemented by interest rate subsidies, the existing lending rate structure was continued.
1.3 An objective of financial sector reform has been to ensure that the financial repression inherent in administered interest rates is removed. Accordingly, in the context of granting greater functional autonomy to banks, effective October 18, 1994, it was decided to free the lending rates of scheduled commercial banks for credit Iimits of over Rupees two lakh; for loans up to Rupees two lakh, it was decided that it was necessary to continue to protect these borrowers by prescribing the lending rates and accordingly it was prescribed that for loans up to and inclusive of Rupees two lakh, the lending rates of banks should not exceed the Benchmark Prime Lending Rate (BPLR) of the respective banks. For credit limits of over Rupees two lakh, the prescription of minimum lending rate was abolished and banks were given the freedom to fix the lending rates for such credit limits subject to BPLR and spread guidelines. Banks were required to obtain the approval of their respective Boards for the BPLR, which would be the reference rate for credit Iimits of over ` 2 lakh. Each bank's BPLR had to be declared and be made uniformly applicable at all branches. 1.4 The BPLR system, introduced in 2003, fell short of its original objective of bringing transparency to lending rates. This was mainly because under the BPLR system, banks could lend below BPLR. For the same reason, it was also difficult to assess the transmission of policy rates of the Reserve Bank to lending rates of banks. Accordingly, based on the recommendations of the Working Group on Benchmark Prime Lending Rate which submitted its report in October 2009, banks were advised to switch over to the system of Base Rate with effect from July 1, 2010. The Base Rate system is aimed at enhancing transparency in lending rates of banks and enabling better assessment of transmission of monetary policy.
2 Guidelines 2.1 General 2.1.1 Banks should charge interest on loans / advances / cash credits / overdrafts or any other financial accommodation granted / provided / renewed by them or discount usance bills in accordance with the directives on interest rates on advances issued by Reserve Bank of India from time to time.
2.1.2 The interest at the specified rates should be charged at monthly rests (subject to the conditions laid down in paragraph 2.9) and rounded off to the nearest rupee.
2.2 Base Rate 2.2.1 The Base Rate system has replaced the BPLR system with effect from July 1, 2010. Base Rate shall include all those elements of the lending rates that are common across all categories of borrowers. Banks may choose any First Appeal No.422 of 2016 16 benchmark to arrive at the Base Rate for a specific tenor that may be disclosed transparently. An illustration for computing the Base Rate is set out in Annex 1. Banks are free to use any other methodology, as considered appropriate, provided it is consistent and is made available for supervisory review/scrutiny, as and when required.
Banks may determine their actual lending rates on loans and advances with reference to the Base Rate and by including such other customer specific charges as considered appropriate. The actual lending rates charged should be transparent and consistent and be made available for supervisory review/scrutiny, as and when required.
2.2.3 In terms of our circular DBOD.No.Dir.BC.88/13.03.00/2009-10 dated April 9, 2010 banks were permitted to change the benchmark and methodology any time during the initial six month period i.e. end-December 2010 which was subsequently extended upto June 30, 2011 vide our circular DBOD.No.Dir.BC.73/13.03.00/2010-11 dated January 6, 2011. In order to enable banks to overcome the difficulties faced by them in computation of their Base Rate, it was decided to allow banks some flexibility in computation / revision of Base Rate methodology. Accordingly, with effect from September 2, 2013 banks were advised to follow the revised guidelines for computation of Base Rate methodology as under:
i. Banks that have commenced their banking operations in India after the coming into effect of the Base Rate regime in July 2010 but have not completed one year of their banking operations as on the date of this circular (September 2, 2013), will be allowed to revise their Base Rate methodology within a year from the date of commencement of their business operations in India.
ii. Banks that will commence their banking business in India after issue of this circular (September 2, 2013) will be allowed to revise their Base Rate methodology within a year from the date of commencement of their banking business in India. iii. In case a bank, including banks listed at para 2.2.3 (i) and (ii) above, desires to review its Base Rate methodology after five years from the date of its finalization, the bank may approach Reserve Bank for permission in this regard.
2.2.4 There can be only one Base Rate for each bank. Banks have the freedom to choose any benchmark to arrive at a single Base Rate which should be disclosed transparently.
2.2.5 Changes in the Base Rate shall be applicable in respect of all existing loans linked to the Base Rate, in a transparent and non-discriminatory manner.
2.2.6 Since the Base Rate will be the minimum rate for all loans, banks are not permitted to resort to any lending below the Base Rate. Accordingly, the stipulation of BPLR as the ceiling rate for loans up to ` 2 lakh stands withdrawn. It is expected that the above deregulation of lending rate will increase the credit flow to small borrowers at reasonable rate so that First Appeal No.422 of 2016 17 direct bank finance will provide effective competition to other forms of high cost credit.
2.2.7 Banks are required to review the Base Rate at least once in a quarter with the approval of the Board or the Asset Liability Management Committees (ALCOs) as per the bank's practice. Since transparency in the pricing of lending products has been a key objective, banks are required to exhibit the information on their Base Rate at all branches and also on their websites. Changes in the Base Rate should also be conveyed to the general public from time to time through appropriate channels. Banks are required to provide information on the actual minimum and maximum lending rates to the Reserve Bank on a quarterly basis, as hitherto.
2.2.8 Even after introduction of the Base Rate system, banks would have the freedom to offer all categories of loans on fixed or floating rates. Where loans are offered on fixed rate basis, notwithstanding the quarterly review of the Base Rate, the rate of interest on fixed rate loans will continue to remain the same subject to the condition that such fixed rate should not be below the Base Rate at the time of sanction. If the base rate is revised upward thereafter and in the process the fixed rate falls below the new Base Rate, it would not be construed a violation of the guidelines on Base Rate.
2.3 Applicability of Base Rate 2.3.1 With effect from July 1, 2010, all categories of domestic rupee loans should be priced only with reference to the Base Rate. Accordingly, the Base Rate system would be applicable for all new loans and for those old loans that come up for renewal. Existing loans based on the BPLR system may run till their maturity. In case existing borrowers want to switch to the new system, before expiry of the existing contracts, an option may be given to them, on mutually agreed terms. Banks, however, should not charge any fee for such switch-over.
2.3.2 However, the following categories of loans could be priced without reference to the Base Rate:
(a) DRI advances
(b) loans to banks' own employees including retired employees
(c) loans to banks' depositors against their own deposits 2.3.3 In those cases where subvention is available to borrowers, it is clarified as under:
(i) Interest Rate Subvention on Crop Loans
a) In case of crop loans up to Rupees three lakh, for which subvention is available, banks should charge farmers the interest rates as stipulated by the Government of India. If the yield to the bank (after including subvention) is lower than the Base Rate, such lending will not be construed a violation of the Base Rate guidelines.
b) As regards the rebate provided for prompt repayment, since it does not change the yield to the banks [mentioned at (a) above] on such loans, it would not be a factor in reckoning compliance with the Base Rate guidelines.First Appeal No.422 of 2016 18
(ii) Interest Rate Subvention on Export Credit Interest rates applicable for all tenors of rupee export credit advances will be at or above the Base Rate. In respect of cases where subvention of Government of India is available, banks will have to reduce the interest rate chargeable to exporters as per Base Rate system by the amount of subvention available. If, as a consequence, the interest rate charged to exporters goes below the Base Rate, such lending will not be construed a violation of the Base Rate guidelines. (The last Rupee Export Credit Interest Subvention Scheme of Government of India was valid upto March 31, 2014).
2.3.4 Restructured Loans In case of restructured loans if some of the Working Capital Term Loan (WCTL), Funded Interest Term Loan (FITL), etc. need to be granted below the Base Rate for the purposes of viability and there are recompense etc. clauses, such lending will not be construed a violation of the Base Rate guidelines.
2.3.5 In those cases where refinance is available to borrowers, it is clarified as under:
(a) Financing of Off-Grid and Decentralised Solar applications Government of India, Ministry of New and Renewable Energy (MNRE) has formulated a scheme on financing of Off-Grid and Decentralised Solar (Photovoltaic and Thermal) applications as part of the Jawaharlal Nehru National Solar Mission (JNNSM). Under the scheme, banks may extend subsidized loans to entrepreneurs at interest rates not exceeding five percent, where refinance of two percent from Government of India is available. Such lending at interest rates not exceeding five percent per annum where refinance of Government of India is available, would not be considered a violation of our Base Rate Guidelines.
(b) Extending financial assistance under Micro Credit scheme of National Scheduled Tribes Finance and Development Corporation (NSTFDC) and various schemes of National Handicapped Finance and Development Corporation (NHFDC) Banks may charge interest at the rates prescribed under the schemes of NSTFDC /NHFDC to the extent refinance is available. Such lending, even if it is below the Base Rate, would not be considered a violation of our Base Rate Guidelines. Interest rate charged on the part not covered under refinance should not however be below Base Rate.
(c) Extending financial assistance under schemes of National Safai Karmacharis Finance & Development Corporation (NSKFDC) Banks may charge interest at the rates prescribed under the schemes of National Safai Karmacharis Finance & Development Corporation (NSKFDC) to the extent refinance is available. Such lending, even if it is below the Base Rate, would not be considered as a violation of our Base Rate Guidelines.
Interest rate charged on the part not covered under refinance should not be below Base Rate.
(d) Lending to Primary Agricultural Credit Societies (PACS) First Appeal No.422 of 2016 19 Banks financing Primary Agricultural Credit Societies (PACS) for short term seasonal agricultural operations may lend below their Base Rate to the extent refinance is available from NABARD. However, when banks use their own funds, they are not allowed to lend below Base Rate.
(e) Bank Finance extended to the beneficiaries of the schemes of National Scheduled Caste Finance & Development Corporation (NSFDC) Banks may charge interest at the rates prescribed under the schemes of National Scheduled Caste Finance & Development Corporation (NSFDC) to the extent refinance is available. Such lending, even if it is below the Base Rate, would not be considered as a violation of our Base Rate Guidelines. Interest rate charged on the part not covered under refinance should not however be below Base Rate.
2.3.6 Interest rates under the BPLR system were applicable to all loans sanctioned up to June 30, 2010. The guidelines on BPLR and Spreads and its determination for existing loans sanctioned up to June 30, 2010 are given in Annex 2 and Annex 3.
2.3.7 Differential Rate of Interest for Micro and Small Enterprises (MSEs) While pricing their loans to MSE borrowers, banks should take into account the incentives available to them in the form of the credit guarantee cover of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and the zero risk weight for capital adequacy purpose for the portion of the loan guaranteed by the CGTMSE and provide differential interest rate for such MSE borrowers, than the other borrowers. However, banks should note that such differential rate of interest is not below the Base Rate of the bank. 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.
2.5 Levying of Penal Rates of Interest Banks are permitted to formulate a transparent policy for charging penal interest with the approval of their Board of Directors. However, in the case of loans to borrowers under priority sector, no penal interest should be charged for loans up to ` 25,000. Penal interest can be levied for reasons such as default in repayment, non-submission of financial statements, etc. However, the policy on penal interest should be governed by well-accepted principles of transparency, fairness, incentive to service the debt and due regard to genuine difficulties of customers.
2.6 Enabling Clause in Loan Agreement First Appeal No.422 of 2016 20 2.6.1 Banks should invariably incorporate the following proviso in the loan agreements in the case of all advances, including term loans, thereby enabling banks to charge the applicable interest rate in conformity with the directives issued by RBI from time to time:
"Provided that the interest payable by the borrower shall be subject to the changes in interest rates made by the Reserve Bank from time to time."
2.6.2 Since banks are bound by the Reserve Bank's directives on interest rates on loans and advances, which are issued under Sections 21 and 35A of the Banking Regulation Act, 1949, banks are obliged to give effect to any revision of interest rates whether upwards or downwards, on all the existing advances from the date the directives / revised interest rate come into force, unless the directives specifically provide otherwise. 2.7 Withdrawals Against Uncleared Effects 2.7.1 Where withdrawals are allowed against cheques sent for clearing, i.e. uncleared effects (e.g. uncleared local or outstation cheques) which are in the nature of unsecured advances, banks should charge interest on such drawals as per the directive on interest rates on advances. 2.7.2 As a measure of customer service, the above instruction will not apply to the facility afforded to depositors for immediate credits in respect of cheques sent for collection.
2.8 Loans under Consortium Arrangement Banks need not charge a uniform rate of interest even under a consortium arrangement. Each member bank may charge a rate of interest on the portion of the credit limits extended by it to the borrower, subject to the condition that such rate of interest is determined with reference to its Base Rate.
2.9 Charging of Interest at Monthly Rests 2.9.1 Banks were advised to charge interest on loans/advances at monthly rests with effect from April 01, 2002. Interest at monthly rests shall be applied in case of all new and existing term loans and other loans of longer / fixed tenor. In the case of existing loans of longer / fixed tenor, banks shall move over to application of interest at monthly rests at the time of review of terms and conditions or renewal of such loan accounts, or after obtaining consent from the borrower.
2.9.2 Instructions on charging interest at monthly rests shall not be applicable to agricultural advances and banks shall continue to follow the existing practice of charging / compounding of interest on agricultural advances linked to crop seasons. As indicated in circular RPCD.No.PLFS.BC.129/05.02.27/97-98 dated June 29, 1998, banks should charge interest on agricultural advances for long duration crops at annual rests. As regards other agricultural advances in respect of short duration crop and allied agricultural activities such as dairy, fishery, piggery, poultry, bee-keeping, etc., banks should take into consideration due dates fixed on the basis of fluidity with borrowers and harvesting / First Appeal No.422 of 2016 21 marketing season while charging interest and compounding the same if the loan / installment becomes overdue. Further, banks should ensure that the total interest debited to an account should not exceed the principal amount in respect of short term advances granted to small and marginal farmers.
2.10 Zero Percent Interest Finance Schemes for Consumer Durables Banks should refrain from offering low / zero percent interest rates on consumer durable advances to borrowers through adjustment of discount available from manufacturers / dealers of consumer goods, since such loan schemes lack transparency in operations and distort pricing mechanism of loan products. These products do not also give a clear picture to the customers regarding the applicable interest rates. Banks should, also, not promote such schemes by releasing advertisements in different newspapers and media indicating that they are promoting / financing consumers under such schemes. They should also refrain from linking their names in any form / manner with any incentive-based advertisement where clarity regarding interest rate is absent. 2.11 Excessive Interest Charged by Banks Though interest rates have been deregulated, charging of interest beyond a certain level is seen to be usurious and can neither be sustainable nor be conforming to normal banking practice. Boards of banks have, therefore, been advised to lay out appropriate internal principles and procedures so that usurious interest, including processing and other charges, are not levied by them on loans and advances. In laying down such principles and procedures in respect of small value loans, particularly, personal loans and such other loans of similar nature, banks should take into account, inter-alia, the following broad guidelines:
a. An appropriate prior-approval process should be prescribed for sanctioning such loans, which should take into account, among others, the cash flows of the prospective borrower. b. Interest rates charged by banks, inter-alia, should incorporate risk premium as considered reasonable and justified having regard to the internal rating of the borrower. Further, in considering the question of risk, the presence or absence of security and the value thereof should be taken into account.
c. The total cost to the borrower, including interest and all other charges levied on a loan, should be justifiable having regard to the total cost incurred by the bank in extending the loan, which is sought to be defrayed and the extent of return that could be reasonably expected from the transaction.
d. An appropriate ceiling should be fixed on the interest, including processing and other charges that are levied on such loans, which should be suitably publicised.
ANNEX 1 First Appeal No.422 of 2016 22 2.12 Illustrative Methodology for the Computation of the Base Rate (Paragraph 2.13 2.2.1) 2.14 Base Rate = a + b + c + d a -Cost of Deposits / Funds = Dcost (benchmark) b -Negative Carry on CRR and SLR= c- Unallocatable Overhead Cost= d- Average Return on Net Worth= Unallocatable Overhead Cost Where 2.15 :
Unallocatable Overhead Cost= Dcost : Cost of Deposits / Funds D: Total Deposits = Time Deposits + Current Deposits + Saving Deposits Unallocatable Overhead Cost is calculated by taking the ratio (expressed as a Dply :
2.16 D ployable Deposits = Total Deposits less Share of Deposits locked as percentage) of unallocated overhead cost and deployable deposits.
CRR and SLR balances. i.e. = D * [1 - (CRR + SLR)] CRR : Cash Reserve Ratio Average 2.17 Return on Net Worth SLR : Statutory Liquidity Ratio Average Return on Net Worth= Tr : 364 T-Bill Rate AverageU: ReturnUnallocatableonNet WorthOverheadiscomputedCost as the product of net profit to net worth c ratio and net worth to deployable deposits ratio expressed as a percentage.
NP : Net Profit
NW : Net Worth = Capital + Free Reserves
Negative Carry on CRR and SLR
Negative Carry on CRR and SLR=
Negative carry on CRR and SLR balances arises because the return on CRR balances is nil, while the return on SLR balances (proxied using the 364-day Treasury Bill rate) is lower than the cost of deposits. Negative carry on CRR and SLR is arrived at in three steps. In the first step, return on SLR investment was calculated using 364-day Treasury Bills. In the second step, effective cost was calculated by taking the ratio (expressed as a percentage) of cost of deposits (adjusted for return on SLR investment) and deployable deposits (total deposits less the deposits locked as CRR and SLR balances). In the third step, negative carry cost on SLR and CRR was arrived at by taking the difference between the effective cost and the cost of deposits.
ANNEX 2 Guidelines on Benchmark Prime Lending Rate (BPLR) applicable to loans sanctioned upto June 30, 2010 (Paragraph 2.3.6) With effect from October 18, 1994, RBI has deregulated the interest rates on advances above Rupees two lakh and the rates of interest on such advances are determined by the banks themselves subject to BPLR and Spread guidelines. For credit limits up to Rupees two lakh, banks should charge interest not exceeding their BPLR. Keeping in view the international practice and to provide First Appeal No.422 of 2016 23 operational flexibility to commercial banks in deciding their lending rates, banks can offer loans at below BPLR to exporters or other creditworthy borrowers, including public enterprises, on the basis of a transparent and objective policy approved by their respective Boards. Banks will continue to declare the maximum spread of interest rates over BPLR.
Given the prevailing status of the credit market in India and the need to continue with concessionality for small borrowers, the practice of treating BPLR as the ceiling for loans up to Rupees two lakh will continue. Banks are free to determine the rates of interest without reference to BPLR and regardless of the size in respect of loans for purchase of consumer durables, loans to individuals against shares and debentures / bonds, other non-priority sector personal loans, etc. as per details given below. BPLR will be made uniformly applicable at all branches of a bank. Determination of Benchmark Prime Lending Rate (BPLR) In order to enhance transparency in banks' pricing of their loan products as also to ensure that the BPLR truly reflects the actual costs, banks should be guided by the following considerations while determining their Benchmark PLR:
Banks should take into account their (i) actual cost of funds, (ii) operating expenses and (iii) a minimum margin to cover regulatory requirement of provisioning / capital charge and profit margin, while arriving at the benchmark PLR. Banks should announce a Benchmark PLR with the approval of their Boards.
The Benchmark PLR will be the ceiling rate for credit limit up to Rupees two lakh.
All other lending rates can be determined with reference to the Benchmark PLR arrived at as above by taking into account term premia and / or risk premia. Detailed guidelines on operational aspects of Benchmark PLR have been issued by IBA on November 25, 2003.
In the interest of customer protection and to have greater degree of transparency in regard to actual interest rates charged to borrowers, banks should continue to provide information on maximum and minimum interest rates charged together with the Benchmark PLR.
Freedom to fix Lending Rates Banks are free to determine the rates of interest without reference to BPLR and regardless of the size in respect of the following loans:
i. Loans for purchase of consumer durables;
ii. Loans to individuals against shares and debentures / bonds;
iii. Other non-priority sector personal loans including credit card dues;
iv. Advances / overdrafts against domestic / NRE / FCNR (B) deposits with the bank, provided that the deposit/s stands / stand either in the name(s) of the borrower himself / borrowers themselves, or in the names of the borrower jointly with another person;First Appeal No.422 of 2016 24
v. Finance granted to intermediary agencies including housing finance intermediary agencies (list as given below) for on-lending to ultimate beneficiaries and agencies providing input support.;
vi. Discounting of Bills;
vii. Loans / Advances / Cash Credit / Overdrafts against commodities subject
to Selective Credit Control;
viii. To a co-operative bank or to any other banking institution;
ix. To its own employees;
x. Loans covered by refinance schemes of term lending institutions.
An Illustrative list of Intermediary Agencies
1. State sponsored organisations for on-lending to weaker sections. Weaker sections include -
i) Small and marginal farmers with landholdings of 5 acres and less, and landless labourers, tenant farmers and share-croppers;
ii) Artisans, village and cottage industries where individual credit requirements do not exceed ` 50,000/-;
iii) Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY);
iv) Scheduled Castes and Scheduled Tribes;
v) Beneficiaries of Differential Rate of Interest (DRI) scheme;
vi) Beneficiaries under Swarna Jayanti Shahari Rozgar Yojana (SJSRY);
vii) Beneficiaries under scheme of Liberation and Rehabilitation of Scavengers (SLRS);
viii) Advances to Self-Help Groups (SHGs);
ix) Loans to distressed poor to repay their debt to informal sector, against appropriate collateral or group security;
Loans granted under (i) to (viii) above to persons from minority communities as may be notified by Government of India from time to time. In states, where one of the minority communities notified is, in fact, in majority, item (ix) will cover only the other notified minorities. These States/Union Territories are Jammu and Kashmir, Punjab, Sikkim, Mizoram, Nagaland and Lakshadweep.
2. Distributors of agricultural inputs / implements.
3. State Financial Corporations (SFCs) / State Industrial Development Corporations (SIDCs) to the extent they provide credit to weaker sections.
4. National Small Industries Corporation (NSIC).
5. Khadi and Village Industries Commission (KVIC).
6. Agencies involved in assisting the decentralised sector.
7. State sponsored organisations for on-lending to the weaker sections.
8. Housing and Urban Development Corporation Ltd. (HUDCO). First Appeal No.422 of 2016 25
9. Housing Finance Companies approved by National Housing Bank (NHB) for refinance.
10. State sponsored organisations for SCs / STs (for purchase and supply of inputs to and / or marketing of output of the beneficiaries of these organisations).
11. Micro Finance Institutions / Non-Government Organisations (NGOs) on-
lending to SHGs.
ANNEX 3 Interest Rate Structure for all Rupee Advances including Term Loans of Commercial Banks sanctioned up to June 30, 2010 [paragraph 2.3.6] Rate of Interest (Per cent per annum) 1.
(a) Up to and inclusive of Not exceeding Benchmark Prime Lending Rupees two lakh Rate (BPLR)
(b) Over Rupees two lakh Banks are free to determine rates of interest subject to BPLR and spread guidelines.
Banks may, however, offer loans at below BPLR to exporters or other creditworthy borrowers including public enterprises based on a transparent and objective policy approved by their Boards.
2. Export Credit up to June 30, 2010 Interest Rates effective from May 1, 2010 to June 30, 2010 will be not exceeding BPLR minus 2.5 percentage points per annum for the following categories of Export Credit:
Categories of Export Credit
1. Pre-shipment Credit (from the date of advance)
(a) Up to 270 days
(b)Against incentives receivable from Government covered by ECGC Guarantee up to 90 days
2. Post-shipment Credit (from the date of advance)
(a) On demand bills for transit period (as specified by FEDAI)
(b) Usance bills (for total period comprising usance period of export bills, transit period as specified by FEDAI, and grace period, wherever applicable
i) Up to 180 days
ii) Up to 365 days for exporters under the Gold Card Scheme.
(c) Against incentives receivable from Govt. (covered by ECGC Guarantee) up to 90 days
(d) Against undrawn balances (up to 90 days)
(e) Against retention money (for supplies portion only) payable within one year from the date of shipment (up to 90 days) BPLR: Benchmark Prime Lending Rate Note:
1. Since these are ceiling rates, banks would be free to charge any rate below the ceiling rates.First Appeal No.422 of 2016 26
2. Interest rates for the above-mentioned categories of export credit beyond the tenors as prescribed above are deregulated and banks are free to decide the rate of interest, keeping in view the BPLR and spread guidelines.
3. Education Loan Scheme up to June 30, 2010 Up to Rupees four lakh Not exceeding BPLR
4. Education Loan Scheme up to June 30, 2010 Up to Rupees four lakh Not exceeding BPLR Above Rupees four lakh BPLR + 1% Note. 1. The interest to be debited quarterly/ half yearly on simple basis during the Repayment holiday/ Moratorium period.
2. Penal interest @2% be charged for loans above Rupees two lakh for the overdue amount and overdue period.
4. Banks are free to determine the rates of interest without reference to BPLR and regardless of the size in respect of the following loans up to June 30, 2010:
i) Loans for purchase of consumer durables
ii) Loans to individuals against shares and debentures / bonds
iii) Other non-priority sector personal loans including credit card dues
iv) Advances / overdrafts against domestic / NRE / FCNR (B) deposits with the
bank, provided that the deposit/s stands / stand either in the name(s) of the borrower himself / borrowers themselves, or in the names of the borrower jointly with another person
v) Finance granted to intermediary agencies (excluding those of housing) for on-lending to ultimate beneficiaries and agencies providing input support.
vi) Finance granted to housing finance intermediary agencies for on-lending to ultimate beneficiaries.
vii) Discounting of Bills
viii) Loans / Advances / Cash Credit / Overdrafts against commodities subject to
Selective Credit Control.
ix) To a co-operative bank or to any other banking institution
x) To its own employees
5. Loans covered by participation in refinancing schemes of term lending institutions up to June 30, 2010 Free to charge interest rates as per stipulations of the refinancing agencies without reference to BPLR
6. DRI Advances 4.0% Note: Intermediary agencies are indicated in Annex 2 APPENDIX List of circulars consolidated in the Master Circular on Interest Rates on Advances as uploaded on RBI website.
15. From the perusal of these clauses as appended herein above the clause pertaining to Floating Rate of Interest states as under:-
First Appeal No.422 of 2016 27
"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."
2.6 Enabling Clause in Loan Agreement 2.6.1.Banks should invariably incorporate the following proviso in the loan agreements in the case of all advances, including term loans, thereby enabling banks to charge the applicable interest rate in conformity with the directives issued by RBI from time to time:
"Provided that the interest payable by the borrower shall be subject to the changes in interest rates made by the Reserve Bank from time to time."
2.6.2.Since banks are bound by the Reserve Bank's directives on interest rates on loans and advances, which are issued under Sections 21 and 35A of the Banking Regulation Act, 1949, banks are obliged to give effect to any revision of interest rates whether upwards or downwards, on all the existing advances from the date the directives / revised interest rate come into force, unless the directives specifically provide otherwise.
2.11 Excessive Interest Charged by Banks Though interest rates have been deregulated, charging of interest beyond a certain level is seen to be usurious and can neither be sustainable nor be conforming to normal banking practice. Boards of banks have, therefore, been advised to lay out appropriate internal principles and procedures so that usurious interest, including processing and other charges, are not levied by them on loans and advances. In laying down such principles and procedures in respect of small value loans, particularly, personal loans and such other loans of similar nature, banks should take into account, inter-alia, the following broad guidelines:
a. An appropriate prior-approval process should be prescribed for sanctioning such loans, which should take into account, among others, the cash flows of the prospective borrower. b. Interest rates charged by banks, inter-alia, should incorporate risk premium as considered reasonable and justified having regard to the internal rating of the borrower. Further, in considering the question of First Appeal No.422 of 2016 28 risk, the presence or absence of security and the value thereof should be taken into account.
c. The total cost to the borrower, including interest and all other charges levied on a loan, should be justifiable having regard to the total cost incurred by the bank in extending the loan, which is sought to be defrayed and the extent of return that could be reasonably expected from the transaction.
d. An appropriate ceiling should be fixed on the interest, including processing and other charges that are levied on such loans, which should be suitably publicised.
16. Thus, from these clauses it is quite evident that RBI has been aware of floating rate of interest on loans and has issued all these directions as a statutory directive issued in exercise of its powers conferred by the Banking Regulation Act, 1949 in the capacity of a Regulator of Banking Operations of Commercial Banks in India.
As per these instructions No.2.4, 2.6 & 2.11, written consent is required to be taken by the Bank whenever they reset the floating rate of interest applicable to the loan accounts of their customers. However, from the perusal of their reply filed before the District Forum, we find that the opposite parties have taken a fresh loan agreement from the complainants in the year 2007 incorporating some changes in their loan agreement for the loan amount which was initially sanctioned by them in the year 2005. No reason has been given why respondent/opposite party - Bank had taken fresh loan documents from the complainants in the year 2007. However, when floating rate of interest was changed, as per table provided in their reply, no written consent from the complainants were taken.
17. In view of the above guidelines issued by the RBI with regard to the fixing of rate of interest to be charged by the Commercial Bank any deviation from these instructions by not First Appeal No.422 of 2016 29 properly adhering to these guidelines / notifications issued by the RBI amounts to deviation of Rules and Guidelines and can be termed as unfair trade practice.
18. Vide Circular No. RBI/2011-12/589 DBOD No. Dir. BC. 107 / 13.03.00/2011-12 dated 5.6.2012 issued by RBI to all the Scheduled Commercial Banks, under which, it was decided that the Bank will not be permitted to charge foreclosure charges/pre-payment penalties on Home Loans on floating interest rate basis. Accordingly, in absence of written consent and also contrary to RBI Guidelines issued to all Commercial Banks not to charge pre-payment penalty on foreclosure on any loan accounts by the Commercial Banks case of the complainants is squarely covered under RBI Guidelines. The action of the opposite party-respondent / Bank charging of fore- closure charges for closing loan account prematurely amounts to deficiency in service and unfair trade practice.
19. Sequel to the above, we are of the opinion that the District Forum did not go through the records placed on record by the opposite parties where tampered documents were placed by the respondent-Bank in order to derive undue advantage against the complainant and also was not aware of the proper guidelines issued by the RBI to the Commercial Banks in order to regulate their interest rates on loans and advances. It simply relied upon the evidence put forth by the respondent/ opposite party - Bank to be correct and wrongly dismissed the complaint.
20. In view of the above observations, the opposite party- Bank is directed to follow the rate of interest as per the original agreement entered between them in the year 2005 and in absence of First Appeal No.422 of 2016 30 written consent as per the directions of the RBI, their act amounts to deficiency in service and also it would amount to unfair trade practice. Thus, the appeal filed by the complainant is allowed and the impugned order is set aside. The following directions are issued against the opposite parties:-
i) to reset interest rate as per their own original loan documents/ agreement taken by them in the year 2005;
ii) to pay `50,000/- as compensation for causing harassment and mental agony on account of adopting unfair trade practice in contravention of RBI guidelines;
iii) to pay `25,000/- as litigation expenses.
21. The opposite parties are further directed to comply with the above directions within 45 days from the date of receipt of the certified copy of this order.
22. The appeal could not be decided within the statutory period due to heavy pendency of court cases.
(JUSTICE PARAMJEET SINGH DHALIWAL) PRESIDENT (HARCHARAN SINGH GURAM) MEMBER June,02, 2017 parmod