If the RBI has its way, banks may have to stop recovering prepayment charges from home loan borrowers in the case of floating rate loans. Banks will also have to bear the onus of proving that a disputed ATM or Internet-based transaction is due to the customer's negligence or mistake.
These were some of the suggestions that came forth at the Annual Conference of Banking Ombudsmen held in Mumbai on September 5.
The RBI is understood to have conveyed to the bankers present at the conference that the onus is on them to implement these suggestions in the interest of customer service, failing which the central bank will have to issue guidelines.
The RBI is of the opinion that floating rate loans pass on the interest rate risk from banks, which are much better placed to manage it, to borrowers. Thus, banks only substitute interest rate risk with potential credit risk. However, in the case of fixed rate loans, banks can charge the appropriate prepayment penalties
The RBI has also told banks to offer long-term fixed rate housing loans to their customers and address their market liability mismatch by recourse to the Interest Rate Swaps (IRS) market.
Among the big players in the home loan market, ICICI Bank charges between 2 and 4 per cent plus the applicable service tax and surcharge on full prepayment of home loan, according to the bank's Web site. State Bank of India, on the other hand, does not charge any prepayment penalty.
Boards must decide
According to a senior official from a public sector bank, the boards of individual banks will now have to take a decision on how to implement these suggestions, particularly the one related to waiving of prepayment charges. This is based on the individual bank's cost of funds and impact on their profit margins.
“Most banks do waive the prepayment charges in case borrowers are paying from their own funds. But if borrowers are prepaying the loan by borrowing from another bank or lender, then some banks do charge a penalty,” he said.
While the intention of the RBI is that prepayment charge should be waived irrespective of the source of funds, it could result in a chaotic situation given that banks do not all change their interest rates at the same time.
“If customers start quitting their bank and approaching other banks every time there is a rate hike, it could lead to lot of confusion. The RBI has to take into account such situations,” he said.
ATM transactions
With regard to disputed ATM transactions most banks do refund customers immediately in case of dispute arising out of a technical glitch. It is only in the case of a dispute arising out of misuse of PIN number that banks delay the refund, the official said.
The RBI also asked banks to provide a single view of all bank accounts of a customer including deposits, loans, and so on. The RBI has asked banks to complete the process within a year.