Unable to repay your loan? Here’s your rights as a borrower
12 Mar 2012, ET Bureau.
Unable to repay your loan? It doesn’t mean you have forfeited your right to a peaceful life. The Banking Codes and Standard Board of India (BCSBI), an autonomous body, laid down a code of conduct for banks, including guidelines for the recovery of dues, in 2009. Some key clauses are as follows:
Sufficient notice: A bank is supposed to inform the borrower about his dues and give a sufficient notice period for payment. It should send a notice at least seven days before it initiates recovery proceedings against the borrower.
Time of calling: A bank cannot call you at any time of the day. A customer can be contacted only between 7 a.m. and 7 p.m. Also, the time, number of calls and content of conversation must be documented by the bank. Moreover, if you request the bank to not call you at a certain time or place, it must honour your request as far as possible.
Civil behaviour: Bank representatives are not supposed to yell or use abusive language. They must respect the customer’s privacy and should refrain from embarrassing him in front of others by divulging details of the outstanding amount. Physical intimidation and violence are, anyway, criminal offences.
Place of contact: The bank must contact the customer at the place he chooses. If no place has been specified, the agent can come to his residence. If he is not available at home, the agent can come to the workplace.
Repossession of property: The Indian Bank Association has also laid down a model policy on collection of dues, which includes guidelines for repossession of property. These are:
The bank will resort to repossession of property only as a last measure and will give a written notice to the borrower before it does so.
The bank must take reasonable care to ensure safety and security of the asset after taking custody.
Upon selling the asset, if the bank is left with any excess amount after settling its dues, it must return this sum to the borrower.
The borrower has the right to regain possession of the asset before it is sold by clearing his dues.
Complaints by customers: Any complaint of misbehaviour by recovery agents must be investigated by the bank. The customer can also take up the matter with the banking ombudsman if the bank fails to look into the complaint or if he is not satisfied with the outcome of the probe.
Details of recovery agents: Generally, banks do not chase customers themselves. They engage professional recovery agents to do their dirty job. Every customer may not be aware of these agents. Hence, banks are not only supposed to post the details of the recovery agents on their websites, but also make this information available to customers at their branches. Moreover, the recovery agent or bank representative must furnish the authority letter issued by the bank as well as his identity card.
Floating rate customers to benefit from dip in rates
20 Dec 2011, Mayur Shetty, TNN.
MUMBAI: Floating rate home loans, which did not reflect market rates when they fell, would now become more faithful to their name. With all major lenders discontinuing prepayment charges on floating rate loans, including those refinance , banks say that floating rates will now indeed float.
ICICI Bank waived pre-payment charges on floating rate home loans effective from November 23 this year for both new and existing customers. This is applicable for partial or full prepayment of home loan. The private bank was the last of big lenders in home finance to continue to impose a penalty on borrowers who chose to close their loan account even if it was from their own resources. Now any floating rate loan can be repaid without penalty.
According to a report by rating agency ICRA, there is already a high level of pre-payment in home loans. The rating agency has completed an analysis of home loan portfolios that have been securitized and subsequently rated by ICRA. The median monthly pre-payment rate has been around 1.1%. Banking sources say that in a falling interest rate regime, the absence of pre-payment charges will put pressure on banks to keep revising their rates in line with those prevailing in the market . If there is a surge in pre-payments , it will affect banks that have securitized and sold their home loan portfolios.
Other dominant lenders such as State Bank of India, HDFC and LIC Housing Finance had discontinued pre-payment charges earlier this year. While SBI had done away with all prepayment charges, including those for refinanced loans voluntarily , HDFC and LICHF discontinued with pre-payment penalties following a National Housing Bank directive in October . Other public sector banks and Axis Bank in the private sector did not have a pre-payment penalty on floating rate loans. Other banks have done away with charges following moral suasion from RBI.
Guarantor is as much responsible as borrower for loan repayment
By Harshala Chandorkar, Senior Vice-President, Consumer Relations, CIBIL
‘A friend in need is a friend in deed’ goes the age-old saying. Many of us believe this notion when a friend asks for help. But in today’s day and age, what one doesn’t realise is that these ideas have to be taken with a grain of salt, especially when it comes to financial transactions.
Take, for example, the case of 29-year-old Rohit, hailing from Saharanpur, who dreams of buying a house in Powai. Rohit works with a private equity firm and earns a good six-digit salary. On immaculately collating all the requisite documents and having an impressive salary certificate attached to his loan application, Rohit was confident of getting the credit sanction within days.
However, to his shock, he was informed by the bank that his loan application was not sanctioned owing to his credit history and credit score. This fact surprised Rohit since he has never borrowed before and holds only two credit cards on which he diligently makes sure to pay his EMIs on time.
His credit card statements have been regularly showing no outstanding amount and no days past due, month on month. On further probing with the bank, he was advised to get a copy of his credit history from a credit information company (CIC). A CIC collects and maintains records of an individual’s payments pertaining to loans and credit cards.
These records are submitted to the CIC by banks and other lenders on a monthly basis. This information is then used to create a Credit Information Report (CIR), which is provided to lenders to help evaluate and approve loan applications. On getting a copy of his CIR from Cibil, Rohit saw that the discrepancy in his credit history and credit score had nothing to do with his own credit behaviour.
It was due to the defaulting of the EMIs on a loan taken by his friend, that Rohit’s CIR showed a negative impact. Are you wondering why? That’s because Rohit was the guarantor on this friend’s home loan, taken two years ago. It was only then that Rohit realised that by pledging as a guarantor on the loan of his friend, he was also legally responsible towards the timely repayment of the loan and his credit history and credit score gets impacted because of this loan.
It is important to understand that as a guarantor on any form of loan, one is equally responsible to ensure the repayment of the loan. A guarantor pledges to repay a loan on behalf of a third party who has taken the loan. Hence, he provides a guarantee to the lender, that he will honour the obligation, in case the principal applicant (in this case Rohit’s friend) is unable to do so. Also, on the other hand, a guarantor’s credit score may be checked by banks depending on their credit sanctioning policies.
However, it is always a prudent practice to have a guarantor who has a higher credit score to guarantee your loan facility. Since Rohit was not under any financial liability, his friend’s loan was sanctioned immediately. But his friend’s default on the loan repayment hit Rohit’s CIR and credit score negatively.
Information on the default of such payments appears in the “Accounts” section of the guarantor’s Credit Information Report (CIR). Hence, it’s imperative that the guarantor on the loan should ensure that the borrower pays the EMIs regularly on the due date, month on month. But, surely, all’s not lost yet for Rohit.
By ensuring that his friend pays all his dues to the bank and regularly starts paying the loan EMIs, Rohit can rebuild both his friend’s and his own credit history and score. He can then re-apply for the loan and fulfil the aspiration of his own home. Financial discipline coupled with prudent credit management will ensure that Rohit and his friend enjoy all the benefits associated with having and building a good credit history and credit score.
