The Competition Commission of India (CCI) has accepted the ongoing practice of banks offering dual rates in home loans as legal though Reserve Bank of India (RBI) had opposed such schemes.
?It cannot be concluded that there is any infringement of any section of the the Competition Act 2002 by banks while offering differential interest rate. It can be inferred from the movement of interest rates that the bank/financial institutions have not arbitrarily increased the interest rate but have done so owing to the prevalent market conditions,” said an investigation report by the CCI.
The Competition watchdog had received complaints from customers over the differential rates offered by the banks in home loans and had conducted an elaborate enquiry to find out whether banks are violating the norms of CCI.
According to the investigation report, banks/financial institutions submitted that the margin/spread which is a part of overall rate of interest offered to borrower vary from individual to individual as it was based on various parameters such as nature of property, loan amount, customer profile and prevailing market condition.
Since these parameters varied from individual to individual, the interest rate offered by banks and institutions were different but the benchmark prime lending /floating reference rate might be the same for the borrowers at a particular time. However, CCI expected that the recent RBI norms on base rate cater to ensure transparency in the pricing of lending rates to the borrowers. The banks are required to exhibit the information on their base rate at all branches, websites and to general public from time to time through appropriate channels.
Further, banks are also required to provide information on the actual minimum and maximum lending rates to RBI on a quarterly basis. These guidelines would not only make the borrower aware about the changes in interest rate but would also help in comparing the interest rates offered by different banks. This would also help the borrowers to understand the reasons behind interest hike and also claiming benefits on account of decline in interest rate.
CCI had received complains from the customers who had taken loan on the floating rate of interest which was variable during the loan tenure. The customers were aggrieved as the benefit of declining floating interest rate was not transferred to them. Further, to avail the benefit of prevailing lower rates the borrower has to pay a switch over/processing fee which defeats the very purpose of availing the floating rate of interest option.
In most of the cases, the customers had taken the loan during the period from 2003-2007. The average interest rate was range bound between 10.63% in April 2004 to 10.50 % in March 2006 and the downward movement of interest rate was limited. However RBI wanted the banks to pass on the benefit of lower rates to the old customers who had borrowed at floating rates.