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TMI Blog2024 (2) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... did resort to an arbitrary methodology. As per the guidelines given by the RBI, any change in that rate cannot be applied to the customers without notice to him and without his consent. Surprisingly, RBI had been issuing guidelines but has done nothing for the implementation of the same. They have just been a mute spectator allowing the banks to charge arbitrarily a very high rate of interest - Even if the benefit of doubt is given to the bank that they are free to charge the interest rate but it is duty of the RBI to see that the customers are not inconvenienced by huge rate of interest charged by the banks. The order dated 17.6.2020 clearly mentioned that no objection by the complainant was received by the Banking Ombudsman but later, under the RTI sought by the petitioner, the Banking Ombudsman admitted that no opportunity for submitting the objection was granted to the petitioner. Even the impugned order of closure of petitioner s complaint by the Banking Ombudsman is a non speaking order and only a formatted order, which has been passed mechanically, without application of mind. The impugned order dated 17.6.2020 passed by the Banking Ombudsman (respondent no.4) is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Borrower and credit of excess interest paid by the Borrower, as on the date of computation of interest. The Borrowing Limit shall be the Loan amount as per the Schedule hereto, which shall stand reduced with the amount of principle repaid or prepaid by the Borrower from time to time. 16. Variable interest rate Usually the Bank reviews interest rates every three months from the month of disbursement or the previous review. The first time your interest rate may be eligible for a review will not be before the end of three calendar months from the month of disbursement. At the time of the review the bank may decide to increase, decrease or leave the interest rate unchanged. Your have been given a Special offer, SCB may announce Special offers from time to time. You have the option, at the sole discretion of SCB, to change to another Special offer provided you agree to pay a fee of 0.75% of the principal outstanding at the time of exercising the option. Standard Chartered Bank Home Loan Regular Rate may change from time to time depending on relevant market conditions. This information shall be available on www.standardchartered.co.in or at our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e complaint, he was informed that the respondent no.5-Bank has filed a reply. The petitioner repeatedly asked for a copy of the reply, but the same was not served to the petitioner and he did not get any chance to file objection to the reply filed by the respondent no.5-Bank. On 17.6.2020, the petitioner got an intimation from respondent no.4 stating that the complaint of the petitioner stood resolved in terms of Clause 11(3)(c) of the Scheme, 2006 and the complaint stood closed. 5. The impugned order dated 17.6.2020 passed by the Banking Ombudsman (respondent no.4) in Complaint No.201920011005735 is quoted below:- Dear Sir/Madam, The Banking Ombudsman Scheme 2006 (BOS-2006) Complaint No: 201920011005735 dated 03/09/2019 against STANDARD CHARTERED BANK We thank you for your Complaint No. 201920011005735 2. In this connection, the bank s comments were sought and your complaint was examined along with the comments submitted by the bank. 3. In the opinion of the Banking Ombudsman, the bank had adhered to the banking norms and practices in vogue and the complainant has been informed to this effect through appropriate means and complainant s objections if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n admitted that no opportunity of submitting objection was granted to the petitioner. Hence, it is clear that the procedure of Clause 11(2) and 11(3) of the Scheme, 2006 was not followed by the Banking Ombudsman. 8. Learned counsel for the petitioner further argued that though the agreed rate of interest was 12.5 % but the respondent no.5-Bank had charged interest from 16% to 18%, and the same was done without consent of the petitioner. Counsel for the petitioner further relied on the Master Circular dated 2.7.2007 issued by Reserve Bank of India wherein Reserve Bank of India has directed as follows:- 2. Guidelines 2.1 General 2.1.1 Banks should charge interest on loans/advances/cash credits/overdrafts or any other financial accommodation granted/provided/renewed by them or discount usance bills in accordance with the directives on interest rates on advances issued by Reserve Bank of India from time to time. 2.1.2 The interest at the specified rates should be charged monthly/rests (subject tol the conditions laid down in paragraph 2.10) and rounded off to the nearest rupee. 2.5 Floating Rate of Interest on Loans 2.5.1 Banks have the freedom to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peaking order and seems that it is just a formatted order. ARGUMENTS OF THE RESPONDENTS 12. Per contra, Ms. Himadri Batra, appearing on behalf of respondent no.5 filed counter affidavit and submitted that, respondent no.5 (M/s Standard Chartered Bank) is a private bank and hence, not amenable to the writ jurisdiction. The bank does not qualify as a State within the meaning of Article 12 of the Constitution of India. She submitted that in 2006 the petitioner approached the bank to avail loan against the property, which the bank sanctioned. The loan agreement was entered on 30.12.2006 for an amount of 9 lacs and was duly disbursed. The sanction letter and the loan ₹12095/-. As per the agreement entered into between the agreement clearly shows that the petitioner had agreed to avail the loan against the property for a period of 144 months on a variable rate of interest. At the time of grant of loan the interest applicable was 12.5% per annum. This was not the fixed rate of interest but a variable rate of interest and the petitioner was well aware of the same. Clause 2.2 (b) of the loan agreement states that variable rate of interest shall be reviewed at the end of eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner has not objected to annual charges, hence, the bank was justified to charge the same as it is also not contrary to the terms and conditions. 20. Mr. Sumit Kakkar, learned counsel appeared on behalf of the Reserve Bank of India (respondent no.2) and submitted that, the RBI has deregulated the interest rate on commercial banks after 1994 as a part of the financial sector reforms. RBI decided to grant greater operational freedom to the banks in determining the interest rates on advances based on commercial considerations. The rate of interest charged by the banks on advances depends on a large number of factors such as cost of fund, cost of operation, credit worthiness of borrowers, riskiness of the loan portfolio, availability of collateral, business strategy of lender, market competition, profit expectations etc. However, the banks were required to give notice of any change in the terms and conditions including interest rate, service charges etc. to the borrower and also ensure that changes in the interest rates and charges are effected prospectively. 21. He submits that RBI had been issuing instructions/guidelines to the banks from time to time on matters relating to int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have not annexed single email whereby they have informed the petitioner that they will be charging such a heavy rate of interest. 26. He further submitted that in February 2011 monthly maintenance charge on the Home Saver Account was introduced by the bank, so the respondent-bank unilaterally started charging the same, though the same was not agreed upon. 27. In fact, the emails annexed along with the reply of respondent no.4 shows that the email was sent to the petitioner, however, the increase from 12.5% per annum has not been mentioned anywhere in the email, it was actually not revealed. One of the emails is being reproduced hereunder:- Dear Mr. Singh, This is further to our telephonic conversation regarding your complaint number 20190703711474 raised with us. We understand from your discussion that you require certain clarification regarding the revision in interest rate happened in your loan account ending with 3060. We have reviewed your loan account in detail and wish to clarify the following. As per the terms and conditions of the sanction letter duly agreed and signed by you, the above loan was booked under variable interest category. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest and the entire amount was to be paid in 144 months. However, the petitioner, who has been paying the EMIs in time, chose to close the loan account. After closure of the loan account, when the petitioner checked the statement of loan account of 9 lacs @ 12.5% interest ₹12095/-. As per the agreement entered into between the per month, which would turn out to be 17,41,680/-, against which the bank ₹12095/-. As per the agreement entered into between the had charged 27 lacs. It is observed that the bank should not have charged ₹12095/-. As per the agreement entered into between the such an exorbitant amount in the garb of higher rate of interest charged by them. There was no rationale to charge such high rate of interest. 31. During the course of argument, learned counsel for the bank handed over the chart which showed the rate of interest, though being agreed for 12.5% interest rate per annum, but actually they had charged in between 16- 18% throughout the period of loan. 32. The bank has not given any rationale to charge such a higher rate of interest. The bank is trying to mask their arbitrary and illegal action by stating that the petitioner has agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. Excessive interest charged by banks 2.12.1 Though interest rates have been deregulated, charging of interest beyond a certain level is seen to be usurious and can neither be sustainable nor be conforming to normal banking practice. Boards of banks have, therefore, been advised to lay out appropriate internal principles and procedures so that usurious interest, including processing and other charges, are not levied by them on loans and advances. In laying down such principles and procedures in respect of small value loans, particularly, personal loans and such other loans of similar nature, banks should take into account, inter-alia, the following broad guidelines: An appropriate prior-approval process should be prescribed for sanctioning such loans, which should take into account, among others, the cash flows of the prospective borrower. Interest rates charged by banks, inter-alia, should incorporate risk premium as considered reasonable and justified having regard to the internal rating of the borrower. Further, in considering the question of risk, the presence or absence of security and the value thereof should be taken into account. The total c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge depend on banking institutions for financial facilities. Several unhealthy prac-tices having slowly penetrated into prevalence were pointed out. Banking is an organised institution and most of the banks press into service long running documents wherein the borrowers fill in the blanks, at times without caring to read what has been provided therein, and bind themselves by the stipulations articulated by best of legal brains. Borrowers other than those belonging to corporate sector, find themselves having unwittingly fallen into a trap and rendered themselves liable and obliged to pay interest the quantum whereof may at the end prove to be ruinous. At times the interest charged and capitalised is manifold than the amount actually advanced. Rule of damdupat does not apply. Penal interest, service charges and other over-heads are debited in the account of the borrower and capitalised of which debits the borrower may not even be aware. If the practice of charging interest on quarterly rests is upheld and given a judicial recognition, unscrupulous banks may resort to charging interest even on monthly rests and capitalising the same. Statements of Ac- counts supplied by banks to borro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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