‘Deficient documentation’ is all too familiar a context cited by banks to delay or even refuse loans to customers.
But the shoe was on the other foot, as the Office of the Banking Ombudsman (OBO) for Kerala, Lakshadweep and Mahe ruled in a recent case referred to it.
FESTIVAL OFFER
A customer had availed himself of a home loan of Rs 22 lakh under a festival offer with concessional fixed interest rate of 7.50 per cent.
The loan agreement was executed on August 30, 2005. In November 2011, the bank issued a demand notice asking the borrower to pay additional interest.
This was on the ground that, according to the bank’s internal guidelines, the interest rate on home loans sanctioned was to be reset every three years.
Accordingly, the bank levied interest at the rate of 12.75 per cent from August 20, 2008 and 12.50 per cent from August 20, 2011.
The borrower contested the levies and filed a complaint with the OBO.
NO CLAUSE
Verification of the loan arrangement showed that the original interest contracted was 7.50 per cent fixed. There were no enabling clauses to reset the interest periodically.
The bank explained that an internal circular was issued on August 16, 2005, which the branch did not incorporate in the loan documents by oversight. Its internal audit team had pointed out the short levy in November 2011, after which the demand notice was issued.
The OBO held that the bank’s action of revising the rate without prior notice to the borrower was arbitrary and contractually not binding.
NOT BINDING
Neither did the loan documents carry any provision for resetting the interest rate every three years.
Accordingly, the bank was directed to roll back all interest revisions and refund the excess levies. The bank refunded Rs 46,170 to the complainant.
(Disclaimer: The Reserve Bank of India does not vouch for the correctness, propriety or legality of orders passed by Banking Ombudsman. The object of placing this in the public domain is merely to disseminate information on the working of the Banking Ombudsman Scheme.)