Bank ‘charges’ 16.5 per cent home loan interest, woman to get Rs 14.41 lakh payout

“…the Opposite Party (Citibank) was deficient in rendering service and indulged in unfair trade practice by charging interest at rates up to 16.5 per cent per annum instead of the agreed rate of 12 per cent per annum and by failing to inform the complainant about the RBI Circular dated 09.04.2010 and the option of switching to the Base Rate system,” the commission said on August 6.

The case arose from a housing loan sanctioned to Gautam on December 13, 2005. The Rs 50 lakh loan carried an interest rate of 12 per cent per annum and had a tenure of 120 months, with a monthly EMI of Rs 71,736. The repayment schedule supplied by the bank showed that the loan was to be fully repaid by November 2015.

Borrower found loan outstanding much higher

Gautam said she regularly paid her EMIs. By January 31, 2014, she had paid 97 EMIs totalling Rs 69,58,332. According to the original repayment schedule, the outstanding principal should have been Rs 14,16,408.

However, her loan account statement showed an outstanding principal of Rs 26,19,404. She then examined the account and alleged that the bank had repeatedly increased the interest rate. The commission found from the statement of account that the bank had charged interest at rates up to 16.5 per cent, despite the loan having originally been sanctioned at 12 per cent.

Gautam also relied on an RBI circular dated April 9, 2010, which introduced the ‘Base Rate’ system from July 1, 2010. She alleged that Citibank neither informed her about the circular nor offered her the option of switching to the ‘Base Rate’ system.

According to the complaint, the bank’s Base Rate during the relevant period varied between 7.25 per cent and 10.5 per cent, while interest on her loan continued to range between 12 per cent and 16.5 per cent.

Bank said loan was on floating rate

Citibank argued that the loan carried a floating interest rate and that Gautam had been informed of revisions through letters issued between March 2006 and October 2013. The commission, however, found that the bank failed to produce those letters or any proof of their dispatch or service despite several opportunities.

“Despite several opportunities granted by this Commission, the Opposite Party has failed to produce copies of the alleged letters or any proof of their dispatch or service,” it observed. The commission held that the bank failed to prove it had communicated the interest-rate revisions or obtained Gautam’s consent.

It also noted that the bank had not informed her about the RBI circular dated April 9, 2010, or offered her the option of switching to the Base Rate system, observing that her “interest burden could have been substantially reduced during the relevant period” had it done so.

Borrower paid nearly Rs 99 lakh

• The commission found that Citibank had received Rs 98,99,568 from Gautam up to May 2017, against Rs 86,08,320 payable under the original 120-month repayment schedule, resulting in an excess recovery of Rs 12,91,248.
• Holding the bank guilty of deficiency in service and unfair trade practice, the commission said it had charged interest up to 16.5 per cent instead of the agreed 12 per cent.
• It added that the bank failed to inform Gautam about the RBI circular and the option of switching to the Base Rate system.
• The commission directed the opposite parties to refund Rs 12,91,248 with 6 per cent annual interest from June 2017, provided the payment is made by October 5, 2026.
• Failing this, the amount will carry 9 per cent annual interest for the period of default until realisation.

The commission also directed payment of Rs 1 lakh for mental agony, harassment and financial hardship, along with Rs 50,000 towards litigation costs. The commission said it was not necessary to separately examine Gautam’s claim for recalculation under the Base Rate system because she was entitled to a refund of the excess amount already found to have been recovered contrary to the loan transaction and applicable regulatory framework.

Takeaway

Banks cannot assume borrowers are aware of interest-rate changes or RBI policy shifts. If a lender revises the interest rate on a home loan or introduces an option that could reduce the borrower’s interest burden, it should be able to show that the borrower was informed and, where required, offered that option.

Consumers facing similar grievances may contact the consumer helpline in their respective states (Delhi helpline: 011-23379146) or dial the National Consumer Helpline at 1915 for assistance.