Consumer is King » Bank

Choosing the right bank or financial institution while taking a home loan: Some tips

ashish — Tue, 13 Apr 2010 15:17:34 +0000

So the decision for buying a new home has been made, and your family is all excited about finally getting your new home. Chances are that you will not have the money to pay the whole amount of the house, and will need to borrow money for the loan (and it gets you a tax benefit as well). So, now you need to get a home loan, and since you have not done this before, you are asking your friends for tips and experiences so as to make the right decision. Do you go in for a private sector bank, or do you go in for the attractive slightly lower interest rate from a government owned bank (even though you believe that the process may not be so smooth) ? Do you go in for a floating rate of interest, or do you go in for a fixed loan ? How do you decide the amount of money that you want to take as a loan.

Well, as to the question about the quantum of loan, you may not have too much of a choice. What this means is that different banks have different calculations about the amount of loan they give to you; they may all look at your credit rating, your financial security and your income, and yet come out with different amounts. So you need to find out which bank is giving you the amount of loan that you are looking for.
Interest rates. Interest rates can change the amount of loan during the concept of a loan, and in the past, people have found that even a fixed interest rate loan is subject to some changes by the bank based on the overall changes in interest rates. Shop around for which bank is charging which interest rate, and whether a reduced rate has some conditions associated with it. Further, when the interest rates have dropped in the past, have these banks actually passed on these reduction of interest rates to their customers ? If not, then you should be avoiding such banks.
Customer service. How does the bank behave with you ? You will have to interact with a bank several times over the course of the loan amount, so look for the servicing nature of the bank. Do they treat you with respect and explain things to you without hiding, or do they just give you documents to sign ? Further, do they keep you waiting for a long time, or try to ensure that they have enough staff so that people do not have to wait for long periods ?
Prepayment penalty. I have friends who really don’t like the concept of a loan hanging over their heads for the next 10-15 years, so as and when they get any lump sum, they pay off the loan amount to some extent. If you are like this, then you should check with the loan terms to figure some aspects such as prepayment penalty, processing charges, switching charges (if you find a bank later offering a lower interest rate), etc.
Finally, look for customer reviews on the internet of how banks have behaved with respect to their loan portfolios in the past. You will get an idea of whether a bank is really customer oriented or not.

Bank fined for losing the property papers of a consumer, decision by National Consumer Forum

ashish — Sat, 03 Apr 2010 11:43:19 +0000

When you take a loan from a bank or a financial institution for the purpose of a house or a loan, the bank or institution would want to ensure that its ownership is retained till you pay off the loan fully. So, if you have taken a car loan, the RC papers says that the bank actually owns the vehicle, and once you are done with the loan, the bank will give you papers that will allow you to claim the registration back in your name. However, in the case of a loan for property, the bank may want to retain the original papers in its control until the loan is paid. In the case of these papers, these are official Government papers that are difficult to get a new copy made if they get lost for some reason. So what happens when you give these papers to the bank or financial institution and they lose these papers, and then deny that they ever had these papers ? Well, you better be sure that you have a receipt from the bank that they kept these papers, and then go to the consumer court to get back your rights (link to article):

The callousness of a nationalised bank in preserving the sale deed of a flat has cost the bank Rs 25,000. In a landmark order, the National Consumer Disputes Redressal Commission (NCDRC) directed Bank of Baroda to pay the amount to a Navi Mumbai resident for misplacing the original sale deed of his apartment. Janardhan B Kotian had given the sale deed of his Vashi apartment to Bank of Baroda while procuring the housing loan. “Being an employee of Bank of Baroda, I had applied for a housing loan from my bank itself to buy a Cidco plot. The bank agreed to give housing loan of Rs 2.35 lakh and I raised a loan of Rs 85,000 from HDFC Bank,” Kotian said.
“In November 2000, I wanted to sell the flat. I approached the bank and paid the entire loan amount with interest. I requested the bank to return the original sale deed but the bank said it was not traceable,” Kotian said. He said that though the bank said that they would give an NoC to CIDCO to go ahead with the sale transaction, he did not accept this as the prospective buyer was not inclined to purchase the flat. “I had to refund the advance of Rs 2.5 lakh I had taken from the prospective purchaser and even forced to take some money from a financier at 2% interest to pay him back the amount,” Kotian said.

In this case, what makes it even worse was that the person worked at the same bank; so consider what happened in those cases where the person was just a regular customer of the bank.

Prepayment penalties imposed on banks when people try to clear off their loans early – no resolution

ashish — Fri, 05 Mar 2010 12:51:18 +0000

If you have taken a home loan, then you wonder at the huge amount of loan outstanding, as well as the number of EMI’s that have to be made (these EMI’s could be large sums of money that would go over many years, possibly over a decade or more); but it is worth it if you want to own that first or second home; in fact if you did not have a home, and the loan amount allowed you to buy your own home rather than live in rented accommodation, you would certainly consider the home loan to have been worth it.
But, as time moves on, you have to consider your finances. You find that the home loan you took was at a rate of interest that is much higher than the current rate of income in the market, or even the bank from which you took the loan once is now offering a rate of interest that is much lower than the loan you are servicing. And you would like to change your loan so that you can avail of the lower rate of interest – and then you run into the instrument that banks apply to prevent you from doing that. This is called the prepayment penalty, and it means that the bank will charge you a certain penalty if you want to make a prepayment to your loan (this could be prepayment above a certain amount, or if you try to pay the whole amount back).
Recently, the Competition Commission of India had declared that it was thinking of imposing a penalty on banks that impose such prepayment penalties, since the penalty acts as a deterrent to people who want to change their banks; however, recently the Reserve Bank Deputy Governor, Usha Thorat has weighed her opinion on this matter, claiming that such a policy would force banks to charge more in terms of enhanced interest rates so as to cover their finances (link to article):

Reserve Bank Deputy Governor, Usha Thorat, said abolishing the practice of levying pre-payment penalty on loans could prompt lenders to hike interest rates to pass on their burden to customers. “There is a chance that banks may pass on this burden to customers (if the prepayment penalty is abolished),” Thorat told reporters.
Banks usually impose a penalty in the range of 2-3 per cent on those customers who choose to close their loan amount before maturity. This, bankers said, would impact their interest earnings besides increasing lending risk.

Banks setting limit on withdrawal from other bank ATM’s

ashish — Mon, 12 Oct 2009 06:08:12 +0000

On April 1, 2009, the RBI brought in a move that was supposed to remove the restrictions on using the ATM’s of other banks. Before this move, if you wanted to use the ATM of some other bank, then it would cost. These would include a direct to the customer for checking account balance, or for withdrawing cash, and could have gone upto Rs. 50 in direct charges. Removal of this limit was a major benefit to customers, since you could now go and access any other ATM. So, if you are out shopping, and run out of money, you would not have to search for the ATM of your bank, instead all you have to do is to find the nearest bank and use the ATM, and all this free of charge. Banks were not too comfortable with this measure, but given that this was an RBI Directive, they went ahead. However, this was free only for customers, the banks still had to clear expenses among themselves. So, if you were an ICICI customer, and wanted to use an ATM of SBI, there were some expenses that the banks would have to bear.
Also, banks that that had huge customer bases and were finding that their ATM’s used to remain busy were obliged to keep on expanding the number of their ATM’s; which is why banks such as SBI and ICICI have a large number of ATM’s, while smaller banks such as Yes Bank, Deutsche Bank, and many others have a much smaller number of ATM’s. By allow customers of these smaller banks to access the larger networks had 2 associated problems:
- It would have some negative effect on the load of the ATM’s of the larger banks
- It would remove the competitive advantage of the larger banks in terms of a much wider and easy availability of the ATM network compared to smaller banks
As a result, there was a push by the Indian Banks Association to add some constraints to this availability of ATM’s, and from October 15, there would be some restrictions on this service (link to news article):

From October 15, a customer can take out a maximum of Rs 10,000 per withdrawal from ATMs not owned by the bank in which he has an account, and the number of such transactions would be limited to five a month.
Going by the IBA guidelines, a savings account holder may get five free third-party transactions a month and could be charged from sixth onwards. However, current account holders might not get any free third-party usage.

For customers of banks with a much wider ATM network, this may not make much of a difference, but for people having accounts with smaller banks and who have got used to being able to use other ATM’s, this restriction may bite (for example, somebody who has got an ATM of another bank right next door). Personally, I have never had chance to use the ATM of another bank, so may not matter much to me.