'Banks need to do away with pre-payment penalty on loans'

Banks should discontinue pre-payment penalty on home and auto loans and do away with the practice of imposing charges on customers for failure to maintain minimum balance, according to the recommendations at a conference.
These action points for improving customer services emerged at the annual conference of Banking Ombudsmen at Reserve Bank held yesterday which was inaugurated by Governor Raghuram Rajan.
"Indian Banks' Association (IBA) may issue instructions at the earliest to banks to discontinue levy of pre-payment penalty on all floating rate loans and ensure that fixed rate loans are truly fixed and are not referenced to any floating rate benchmark", said a release issued by RBI today.

Another action point emerging from the conference was that "banks may discontinue" the practice of levying penalty for non-maintenance of minimum balance in ordinary savings bank accounts and instead consider converting such accounts to Basic Savings Bank Deposit accounts.
"IBA/RBI may issue the necessary operational instructions to banks in this regard," the conference said.
All 15 Banking Ombudsmen, heads of major public and private sector banks, representatives of major foreign banks and Chief Executive of IBA among others attended the conference.

"Banks and IBA to revisit the 'reasonableness' of the proposed levy of charge for transactions done by customers at banks' own ATMs," the RBI release added.

The conference also suggested to banks and IBA to formulate policy on zero liability of customer in electronic banking transactions, where the bank is unable to establish customer level negligence.
"The onus of proving customer level negligence would be on the bank and when such negligence is not established beyond doubt, the benefit of such doubt may be given to the customer" the release said.
Ombudsmen suggested to banks and IBA to work together on rolling out a wide impact media campaign for improving financial literacy, creating awareness of products and commitment of banks to Fair Practices Codes.