'Unfair' home loans under MRTPC Scrutiny

The banks have been using non-transparent ways to compute interest rates on home loans. When ever the banks offer lower home loan rates it is applicable for the new customers only while the existing customers continue to pay the higher rates. Such policies of the banks have come under the regulatory scanner.

The Monopolies and Restrictive Trade Practices Commission (MRTPC) has ordered an investigation into the non-transparent way in which banks are computing interest rates on home loans and how they discriminate between new and existing customers. Taking cognizance of media reports, the commission has asked its investigation wing — the director general of investigation and registration (DGIR) — to probe the alleged unfair pricing practices adopted by banks, particularly for home loans.

According to reports, banks have their own internal computed reference rate to determine interest rates rather than an external market-linked one. When a person opt for a floating rate — believing that his interest burden would ease if the cost of funds falls — is deprived of the benefit.

Many banks are quick in raising interest rates whenever there is a slight increase in the cost of funds. But when it comes to slashing of interest rates, they wait for a considerable fall in the cost of funds before slashing interest rates by a small fraction.

It has been alleged that banks readily reduce rates while negotiating with new customers to beat competition from rivals. Existing customers are often left out from such interest rate cuts.

The regulator has excluded pre-closure penalty from the scope of the probe as it believes that banks have a genuine difficulty when funds allocated over a long period are paid back prematurely. Besides, some banks even reset the fixed interest rate under a provision. This fact is often not properly communicated to customers at the time of selling the loan. DGIR usually completes its investigations in two months.

The investigation comes at a time when existing consumers are feeling the pinch from a sharp escalation in their interest burden. Inflation in cement and steel, too, has dealt a blow to new customers with real estate prices shooting up sharply.