NEWS & ADVICE : HOME LOANS
Banks should avoid the practice of charging excessively: RBI
By Joseph Samson
Nov 3, 2007
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New Delhi: The practice of excessive and arbitrary increase in the interest rates and EMI's by banks has not gone well with the Reserve Bank of India (RBI). Taking strong views on the matter the RBI Governor Y V Reddy, has threatened to slap the Usurious Loans Act (ULA) on the banks if they don't mend their ways.

Addressing the bank chiefs at the monetary policy review he said," I would not hesitate to recommend to Parliament that the ULA be extended to the banking sector if they did not charge reasonable rates of interest."

Off late, RBI has been flooded with consumer complaints about the unreasonable hike in interest rates, and this matter has been discussed a lot in the organization. Currently, the interest rates charged by banks and financial institutions are beyond judicial scrutiny because of an overriding clause in the Banking Regulations Act. However, if the ULA, which tackles the menace of excessive interest rates charged by money lenders is applied to the banking sector, the interest rates charged by the banks will come under judicial purview. A customer can then take the banks to court if he thinks that the interest rates charged are unfair.

The recent hike in fixed interest rate home loans by various banks and unreasonably high interest rates on various services had irked the apex banking regulator so much that it had to threaten the banks with dire consequences. “Banks charge interest rates as high as 50 per cent on credit cards. Apart from this, the late fee and other service charges are also never defined and are not reasonable, I hope this threat will work and I will not be forced to take any regulatory action,” the RBI governor said.


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