8216;Allow fixed,floating loan portability8217;

This RBI panel's move will warm the cockles of home loan borrowers' hearts.

In what may warm the cockles of home loan borrowers,a committee set up by the RBI has proposed that all banks must permit home loan borrowers to switch over from fixed to floating rates or vice versa at least once during the loan tenure at an appropriate and reasonable fee. At present,while some banks dont permit such switchovers,many others make it prohibitive.

The panel on customer service of banks,chaired by former Sebi chairman M Damodaran,also recommended ending the discrimination in interest rates offered to new and old home loan customers. In a floating interest rate scenario,when an entire class of borrowers has the same characteristic and risk level,the point of entry in time old customers and new customers should not create discrimination in interest rate offered to the customers. Measures to stop practices of discriminating between new and old customers with identical risk profiles on the basis of interest rate offers,must also be initiated, the panel said.

On the high home loan foreclosure charges,the panel said banks should not impose exorbitant penal rates towards foreclosure of home loans and a policy should be devised to ensure that customer is not denied of opportunity to enhance his economic welfare by making choices such as switching to other banks/ financial entities to enjoy the benefits conferred by market competition. Foreclosure charges levied by banks on prepayment of home loans are resented upon by home loan borrowers across the board. Banks are also found to be hesitant in passing on the benefits of lower interest rates to the existing borrowers in a falling interest rate scenario, it said.

The panel said foreclosure charges are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source. This is especially so when some banks are offering lower interest rate benefit to new customers,also floating rate is anchored to an internal rate,it said.

The panel said regulation is also silent on issues such as teaser rate loans,festival loans and several such promotion schemes. The existing customers of banks who are disadvantaged have questioned the logical basis for giving such concessions to a few new customers and how banking risk becomes more favourable suddenly for such class of customers etc. The trend of such loans was noticed in all liquidity situations. The Committee feels that regulation should plug such anomalies which create doubts about fairness regarding pricing which should be transparent,non-discriminatory and objective, it said.

What the RBI Committee proposes

ON ATM CARDS: If an ATM card has been misused by another person,on receipt of SMS about use of the card,the customer should be able to immediately send return SMS to block the card with a single word like BLOCK to prevent further withdrawals.

DEPOSIT INSURANCE: In the case of default by banks,the Rs 1 lakh cover guaranteed to each account under current rules should be raised to Rs 5 lakh.

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SINGLE COMMON CALL NUMBER: There should a single common toll free call number for customer services for all banks. The Indian Banking Association should consider a toll free Common Call Centre number like Dial 100 for all banks.