Borrowers starting to get jittery

When Priya, 26, an executive with a private firm, sought a car loan from a public sector bank a few years ago, she opted for a five-year loan tenure.

She was given to understand that around Rs 5,000 would be the monthly outgo (towards loan dues) from her salary account, which she maintained with the same bank. The arrangement suited Priya as she did not have to give post-dated cheques towards repayment of her dues.

When the loan tenure was about to end, Priya informed the official that she had just one instalment left to close this account and wanted to know how to get the hypothecation charge released. When the banker checked her loan account, Priya was in for a shock. The account showed a balance in excess of Rs 20,000, which meant that she had more than an instalment left to close the account.

The borrower asked for the statement, only to realise that the rate of interest on the loan had over the years shot up by 2.5 per cent. Since the instalment did not vary with the increase in interest rate, she said she had no clue about this hike. She paid the balance in one shot and closed the loan account.

Priya later told this correspondent that she planned to buy a second car, but decided to postpone the purchase for now because the rate of interest on car loans was showing an upward bias.

While Priya could postpone or even do without a second car, the same may not hold good for the MSME (micro, small and medium enterprise) borrowers, who today are under pressure because of the steep increase in interest rates.

Though bankers contend that a 25 bps hike in interest rate (announced by the RBI on Friday) has been on expected lines, the small traders and promoters of SSI units still seem a worried lot.

A visit to the branches of smaller banks such a City Union Bank and Karur Vysya Bank revealed that a good number of such borrowers were spending more time in the Branch Manager's cabin, voicing concern about the frequent hike in the rates.

Officials said that not a day passed without customers blaming them for increasing the interest rate, particularly in the last couple of months and pleading for sympathy.

Demanding concessions

A foundry owner (borrower), with over two decades' experience, was vehemently arguing with his banker for not giving any concession to those who paid their dues promptly.

He told this correspondent that he has been getting financial support from the bank for decades now.

“I am aware that the rates quoted by old private banks are comparatively higher than nationalised bank rates, but then, my banker has always been supportive. While I appreciate their promptness in extending timely finance, I am quite concerned about the 200 basis points rise in rates in two months,” he said, preferring anonymity.

Processing charges

He also complained that banks impose other charges such as “factory inspection” charges and questioned their need.

“Why should we pay for ‘inspection' of factory when we have been prompt in repayment of our dues?” he asked and pointed out that the borrower learnt of such charges only from the account statement.

Asked if he had any problems in getting bank finance, he said “it's not easy to get bank finance. We have to pledge almost every asset of ours to get the accommodation and when we approach the bank for additional sums, it doesn't come that quickly.”

But bankers beg to differ. They maintain that they support customers whose track record has been good and help those in trouble, sometimes even before they approach the bank for restructuring their loan.

COMMENT NOW