Banks not following RBI guidelines borrowers are not informed about changes in interest rates

The loan consumers must be informed about the change in loan rates by the bank.

The ombudsman official agrees: "A Reserve Bank of India circular says in case of an increase (in interest rates), the customer must be informed, so if he is not interested, he may be given a chance to repay or shift to another bank which offers a lower rate of interest. In case the bank is at fault (by not informing the customer), it has to take a sympathetic view as this is not in keeping in line with the instructions."

The banking codes and standards board of India's code of bank's commitment to customers clearly mentions, "We will inform you when we change interest rates on our products." If there is any change in rates it will adversely affect the account holder, he must be apprised about it individually-preferably in writing-via letter or email.

A source in the Reserve Bank of India says, "But if the customer accepts oral communication, we have no objection to it".

But oral communication leaves a consumer with little proof in a dispute.

Mumbai based floating-rate home loan consumer last week, received a strange letter from his lender, a new-age private sector bank. The letter stated that a cheque issued by the consumer in July, had bounced.

It added that the cheque was drawn to pay the difference in the EMI (equated monthly installment) amount to factor in an interest rate hike. The consumer was thus asked to pay the amount, plus Rs 200 as cheque return charges and 2% service tax.

Consumer said, "Firstly," says the consumer, "I did not issue any cheque for July as I was told the hike was effective from August. And why did the bank suddenly realize that some cheque had bounced six months after it happened?" The bank has since apologized for the goof-up.

A written statement sent to TOI said, "The customer has month on month been paying the differential part of the EMI through a cheque. Since he has been paying the differential amount on a monthly basis, payment of July month's amount has been missed out".

Notably, the consumer insists, no written intimation was sent to him about the interest rate hike. All communication in the matter, he says, was oral. While the bank, on its part, said the consumer had been sent a mail detailing the increase.

"The customer has been sent the reset letter dated April 1, 2007, on April 12, 2007, intimating the increase in ROI (rate of interest) and resultant increase in EMI." However Consumer organizations, say disputes over communication lapses are not unheard of. They are known to go up to the banking omubudsman's office too.

"In such cases, we normally ask for proof of delivery (from the courier)," says a senior omubudsman official.

Such lapses occur due to staff inefficiency or system error. A Delhi personal loan consumer since March 2007, points out Sanjeev Talwar of Delhi's National Consumer Helpline, hasn't received even his account statement. Some time ago, in Mumbai again, another floating-rate loan consumer discovered that his EMI amount, sourced directly from his account via the electronic clearing system (ECS), had increased without any intimation about a rate hike.

V M Oza, honourary director, complaints, at Ahmedabad's Consumer Education and Research Centre (CERC) says “There is a provision that rate change cannot be made unilaterally. The bank should inform the customer about it without any hindrance."