 "Life could get easier for bank customers")
Your borrowing cost might not come down in a hurry. But the Reserve Bank of India (RBI) has set a strong agenda in the next few months to make life easier for bank customers.
In its Annual Monetary Policy, the apex bank has asked the Indian Banks’ Association to ensure the Damodaran committee report is implemented. There are several good proposals made by this committee, such as benchmarking of service charges for basic banking services, placing the onus on banks to prove customer negligence and doing away with the discrimination in interest rates offered to old and new borrowers under the floating interest rate.
If implemented, these measures will bring uniformity in the fees charged by banks for their services. For instance, some banks today charge customers for providing mobile alerts for ATM and account transactions, while some do not. The proposal of bringing parity in the loan rates for old and new customers will be particularly helpful for home loan customers since these are long-term loans and go through cycles of rate hikes and cuts.
RBI has also said banks should not discriminate between customers of ‘home branch’ and ‘non-home branch’. The former is the branch where the customer has the account. Many banks charge a fee if the customer avails of a product or service at a non-home branch. For instance, a cash deposit made at a non-home branch involves a fee in the case of some banks. “This practice is contrary to the spirit of the Reserve Bank’s guidelines on reasonableness of bank charges,” says the policy document.
Since all banks have implemented a Core Banking Solution, it is possible for them to provide all services and products across all branches and to all customers, with the aid of technology. Therefore, it is not right for banks to charge customers who carry out transactions at non-home branches.
Importantly, it has also criticised banks' practice of charging different rates to retail borrowers even for loans sanctioned on the same day. While banks justify this practice saying it is based on the individual customer’s risk profile. RBI says such variation reflects opaqueness in the system.
According to CVR Rajendran, executive director, Bank of Maharashtra, today, two customers with the same risk profile may get the same loan at different rates. This is due to the customer’s negotiation capacity. “Many customers do not know that they can bargain for better rates. So, lack of information works to their disadvantage and this is grossly misused. As a bank, I have the discretion to sanction the loan or not. But, ideally, pricing of the loan should be transparent and available on the bank’s website,” he says.
Of course, a direct rate cut would have made life much easier for borrowers. But these other measures, if implemented, will have a positive impact on customers in the long term.
In its Annual Monetary Policy, the apex bank has asked the Indian Banks’ Association to ensure the Damodaran committee report is implemented. There are several good proposals made by this committee, such as benchmarking of service charges for basic banking services, placing the onus on banks to prove customer negligence and doing away with the discrimination in interest rates offered to old and new borrowers under the floating interest rate.
If implemented, these measures will bring uniformity in the fees charged by banks for their services. For instance, some banks today charge customers for providing mobile alerts for ATM and account transactions, while some do not. The proposal of bringing parity in the loan rates for old and new customers will be particularly helpful for home loan customers since these are long-term loans and go through cycles of rate hikes and cuts.
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There could be some drop in property prices if builders’ project cost comes down. RBI has proposed to change the norms on risk weights and provisioning on commercial loans given to builders for housing projects. This is because residential housing is less risky, says RBI. So, if banks lower their lending rates to builders for construction of housing complexes, it is possible that builders could pass on this benefit to home buyers by lowering the property price.
RBI has also said banks should not discriminate between customers of ‘home branch’ and ‘non-home branch’. The former is the branch where the customer has the account. Many banks charge a fee if the customer avails of a product or service at a non-home branch. For instance, a cash deposit made at a non-home branch involves a fee in the case of some banks. “This practice is contrary to the spirit of the Reserve Bank’s guidelines on reasonableness of bank charges,” says the policy document.
Since all banks have implemented a Core Banking Solution, it is possible for them to provide all services and products across all branches and to all customers, with the aid of technology. Therefore, it is not right for banks to charge customers who carry out transactions at non-home branches.
Importantly, it has also criticised banks' practice of charging different rates to retail borrowers even for loans sanctioned on the same day. While banks justify this practice saying it is based on the individual customer’s risk profile. RBI says such variation reflects opaqueness in the system.
According to CVR Rajendran, executive director, Bank of Maharashtra, today, two customers with the same risk profile may get the same loan at different rates. This is due to the customer’s negotiation capacity. “Many customers do not know that they can bargain for better rates. So, lack of information works to their disadvantage and this is grossly misused. As a bank, I have the discretion to sanction the loan or not. But, ideally, pricing of the loan should be transparent and available on the bank’s website,” he says.
Of course, a direct rate cut would have made life much easier for borrowers. But these other measures, if implemented, will have a positive impact on customers in the long term.