Banks get notices for penalty on home loan pre-payment
Business Standard, January 21, 2010, Section II, Page 14
Press Trust of India, New Delhi
The Competition Commission of India (CCI) has asked about two dozen banks and housing finance companies, including SBI, HDFC, ICICI Bank and LICHF, to explain their move of imposing penalty on borrowers for pre-payment of home loans.
The Commission, according to official sources, has sent notices to major home loan players after examining a report of Director General (Investigations) which found evidences against banks, which also include public sector lenders Punjab National Bank and Bank of Baroda, for misusing their dominant position and entering into anti-competitive agreements. "We have sent showcause notices to 20 banks, including ICICI Bank, HDFC, LIC Housing Finance, Deutsche Postbank and the Indian Banks' Association. We have also sensitised the Reserve Bank on how the practice of charging pre-payment penalty is hurting consumers," a senior CCI official said.
The competition watchdog was scrutinizing a customer complaint against the practice. However spokespersons of ICICI Bank, HDFC and LICHF could not be reached for comments.
The move gives hope to thousands of borrowers who want to close their home loans without paying penalty. If the penalty is lifted, it may also lead to borrowers’ shifting their accounts to lenders offering lower interest rates. The commission could peanlise the lenders for adopting such practices or the practice could be banned across the industry, according to the official.
Market leader HDFC, for example, currently levies pre-payment charges ranging between zero and two per cent of the amount pre-paid by a borrower.
The pre-payment penalties are imposed to discourage customers from retiring their debts before the scheduled date. Some lenders charge only if the customer seeks refinancing the loan by taking money at a lower rate from some other entity.
Housing Loan outstanding at the end of March 2009, rose to Rs 2,63,235 crore, compared to Rs 2,52,932 crore at the end of 2007-08.
Business Standard, January 21, 2010, Section II, Page 14
Press Trust of India, New Delhi
The Competition Commission of India (CCI) has asked about two dozen banks and housing finance companies, including SBI, HDFC, ICICI Bank and LICHF, to explain their move of imposing penalty on borrowers for pre-payment of home loans.
The Commission, according to official sources, has sent notices to major home loan players after examining a report of Director General (Investigations) which found evidences against banks, which also include public sector lenders Punjab National Bank and Bank of Baroda, for misusing their dominant position and entering into anti-competitive agreements. "We have sent showcause notices to 20 banks, including ICICI Bank, HDFC, LIC Housing Finance, Deutsche Postbank and the Indian Banks' Association. We have also sensitised the Reserve Bank on how the practice of charging pre-payment penalty is hurting consumers," a senior CCI official said.
The competition watchdog was scrutinizing a customer complaint against the practice. However spokespersons of ICICI Bank, HDFC and LICHF could not be reached for comments.
The move gives hope to thousands of borrowers who want to close their home loans without paying penalty. If the penalty is lifted, it may also lead to borrowers’ shifting their accounts to lenders offering lower interest rates. The commission could peanlise the lenders for adopting such practices or the practice could be banned across the industry, according to the official.
Market leader HDFC, for example, currently levies pre-payment charges ranging between zero and two per cent of the amount pre-paid by a borrower.
The pre-payment penalties are imposed to discourage customers from retiring their debts before the scheduled date. Some lenders charge only if the customer seeks refinancing the loan by taking money at a lower rate from some other entity.
Housing Loan outstanding at the end of March 2009, rose to Rs 2,63,235 crore, compared to Rs 2,52,932 crore at the end of 2007-08.
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