Is your bank gypping you on home loan rates? Tell us

Recently, I got a notice from my bank, stating that they had increased the interest rate on my existing home loan from 13 to 13.25 percent. The bank’s pedigree is impeccable, and it is one of the largest private banks in India. It keeps delivering great numbers quarter after quarter!

Now I know why.

My credit-linked pedigree is no less impeccable - no delays or defaults ever on home/auto loans, timely and full payment on credit card outstandings, EMI-to-income ratios well under prescribed levels. In brief, someone who the bank will probably mark as low-risk in their dirty little blackbook!

[caption id=“attachment_113695” align=“alignleft” width=“380” caption=“Reuters”]  [/caption]Within a week of receiving the letter, I dropped by at the neighborhood branch and part prepaid a not insubstantial chunk of the outstandings. Queries relating to interest rates on fresh loans were stone-walled by bank representatives , and it was only after I expressed my intention to buy a second house (I lied, of course), that they condescended to have “someone call me from the sales team”. Within 24 hours. (read the exchange of mails here )

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When the promised call came (within 24 hours!), I was generously offered a new home loan (floating), carrying a teaser of 10.5 percent for the first two years. Compare that to the 13.25 percent this very bank is currently charging me on a five-year-old loan. And when I dug out the records, I realised they have been pretty much ripping me off for almost 18 months now.

The mistake, of course, was mine. I let them do it.

This 275 basis point difference, as my spreadsheet promptly revealed, was going to blow a Rs 3 lakh hole in my pocket over the residual loan tenure of my existing loan! Even without factoring in esoteric stuff like time-value of money, net present value (NPV) and interest rates in the future, Rs 3 lakh is a lot of money.

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What followed was a negotiation over mail, and it took about three mails from me to get them to reduce the rate by 200 basis points. Some of the exchanges are reproduced below, for the reader’s benefit (private details masked).

Continues on the next page

Sep 30, 2011 at 6:13 PM

Mailed to: loansupport@ABCDbank.com

Subject : Clarification on existing home loan (floating) Refer : Agreement No. XXXXX

With reference to the above-mentioned loan account, I would most respectfully like to point out that you have been over-charging me for the last 18 months. The current interest rate that is being charged (as per your correspondence to me in August 2011) is 13.25 percent!

I am deeply distressed to know that there is such a wide gap between interest rates for new loans, and the ones being charged to existing customers like me. Please check your records to look at my creditworthiness, payment track record as also the part payments which I have been making to bring down my liability (and your risk, if any).

Furthermore, during my call with your representative yesterday afternoon (call originated from 080-xxxxxx) , which was about a new apartment that I am considering buying , she mentioned an effective interest rate in the vicinity of 10.75 percent. I fail to understand why there is such a huge gap in what I am being charged, and what your current terms on home loans are.

I request you to kindly revert with clarifications on:

1. What is the reason ABCD Bank Ltd is charging me 13.25 percent interest on my home loan, which is almost 2.5 percent over the current rates.

2. My records show, that this has been going on for at least 18 months now - so what is it that you will do to correct this oversight? (I would not call it an unscrupulous trade practice by ABCD Bank Ltd. at this stage, as I believe that your bank deserves a benefit of doubt till you give me a reasonable clarification).

I look forward to your clarifications and corrective measures.

Regards,

Shining Path

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Pls note: The emails themselves are actual reproductions although the name of the bank has been changed.

Oct 1, 2011 at 7:43 PM

Mailed-byABCDbank.com

Dear Mr. Shining Path,

Thank you for writing to us.

We have received your e-mail dated September 30, 2011 regarding home loan.

Being indexed to the PLR, the rate of interest in your loan account is subject to revision from time to time with the changes in bank’s reference rates which depends on the market conditions.

Revisions in PLR are notified through print media and placed on bank’s web site with the effective date of revision also stated therein. By doing so, our bank is deemed to have adequately notified the public at large and also borrowers whose loan accounts are liable to be impacted.

Thereafter, bank is entitled to give effect of the revision in loan accounts booked, linked to the BPLR; Revision in rate is also notified through letters to the borrowers concerned as well

It is also worthwhile to mention that Reserve Bank of India have issued comprehensive guidelines to banks on matters related to BPLR/Benchmark Prime Lending Rate and charging interest on BPLR/Benchmark Prime Lending Rate basis and our bank is fully compliant with the same.

Our bank has acted in accordance with the rights vested as per the loan contact and extant regulatory guidelines. The rate revisions are binding upon you and hence the request is not maintainable and may kindly be withdrawn unconditionally.

Thanking you in anticipation of your understanding and cooperation.

Disclaimer: “blah blah. The contents of this message may not necessarily represent the views or policies of ABCD Bank Ltd.”

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Oct 1, 2011 at 11:06 PM

To loan support

Thank you for sharing your knowledge about PLR/BPLR/RBI/Benchmark/Guidelines with me. Deeply appreciate.

Unfortunately, the specific queries (as detailed out in my original mail sent yesterday) have not been addressed by you. So, I am afraid I will have to escalate this matter.

Your attempt to evade the original points raised by me is duly noted. And I would be well within my rights to treat a response which does not address the specific points raised by me as an attempt by ABCD to obfuscate the issue and justify its questionable business practice.

Thanking you in anticipation of a clearly worded response to my original queries as to why I am being charged almost 2.5 percent more than what is being offered on new loans currently (including the offer made by your representative to me).

Regards,

Shining Path

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Oct 3, 2011 at 10:09 AM

mailed-byABCDbank.com

Dear Mr.Shining Path,

We have received your e-mail dated October1 ,2011 regarding home loan.

We are looking into the same and would require some time to address it.

We will revert to you within 5 working days.

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Oct 3, 2011 at 10:13 PM

to loansupport@ABCDbank.com

Thank you for giving due attention to the matter raised by me, finally. I do hope a fair and transparent outcome will be worked out and conveyed to me over the next 5 days.

Regards,

Shining Path

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Oct 8, 2011 at 3:21 PM

Mailed by loansupport@ABCDbank.com

Dear Mr. Shining Path,

Thank you for your patience and cooperation.

This is with reference to your e-mail dated October 05 ,2011 regarding Rate of interest.

We would like to inform you that the rate of interest has been reduced by 2%.The new rate of interest is 11.25%.

Please find the soft copy of new statement of account and repayment schedule attached along with this mail as requested.

The questions this entire episode raises are:

• How many more such banks are indulging in unequivocally unethical conduct like this? Have any of you faced a situation like this? For most of us, there is a salary flowing in every month, and a part of that is flowing out to the bank to service a loan - there ends the matter. And we assume that the bank will not be trying any funny stuff with us surreptitiously. Like sneaking in hikes which are totally out of whack with market realities. These are large, “professional” banks, and we trust them.
• When a bank uses language like “The rate revisions are binding upon you and hence the request is not maintainable and may kindly be withdrawn unconditionally” and follows it up with a disclaimer at the bottom which reads “The contents of this message may not necessarily represent the views or policies of ABCD Bank Ltd.” , what the hell is it actually saying??
• Had I not pointed out the fact that they were over-charging me, they would likely have kept on doing so in the future as well. Where does one draw the line between unethical and illegal?

Have you had similar experiences? Please tell us about them either in the comments section, or by writing to us at firstpostin@gmail.com