The fair trade practices body MRTPC has initiated a probe into how lending institutions arrive at these rates.
NEW DELHI: Puzzled by the way banks levy differing 'floating interest rates' from new and existing customers, the fair trade practices body MRTPC has initiated a probe into how lending institutions arrive at these rates.
After receiving complaints from existing home loan customers that they were not offered the benefits of low interest rates extended to new customers, the MRTPC directed its investigation arm DGIR to probe how banks can arrive at two different rates, although the benchmark rate - Floating Reference Rate - is only one for each institution.
According to sources, the Monopolies and Restrictive Trade Practices Commission feels that the practice of banks using low interest rates to woo new customers while forcing the old ones to pay higher rates was discriminatory and restrictive under the MRTP Act.
Moreover, the Commission has also noticed that the banks are discouraging their customers from repaying the loan ahead of the tenure, by imposing unreasonable penal interest.
The banks, Commission sources observed, also try to restrain their customers from switching over to other policies that attract lower interest rates.
Often, sources added, such switch overs are accompanied by penal interest rates imposing restrictive burden on the consumers.
In addition, sources said, while providing loans at floating interest rates to customers, banks do not explain the intricacies of calculating interest rates which otherwise would help the loan seekers understand the scheme and also the pitfalls better.
Moreover, the practice of not passing over the benefit of fall in the interest rates to the existing borrowers, especially when they are under the belief that any fall in interest would benefit them, according to sources, "is prima facie unfair".
The MRTPC can initiate a judicial inquiry against banks if DGIR finds that they are depriving the existing customers the benefit of declining interest rates.
Last month, Reserve Bank Governor Y V Reddy had said that banks will have to ensure transparency in the way they charge interest rate, whether it is fixed or floating, and discrimination, if any, should be justified.
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