RBI: Banks need to do away with pre-payment charges for floating home loans

Banking Ombudsmen have suggested that lenders need to compensate customers for mental harassment they suffer due to deficient services.

At their annual conference held at the Reserve Bank of India (RBI), they also suggested that banks need not impose any charges for pre-paying loans taken under floating rates by customers.

RBI or the Indian Banks Association (IBA) would examine the issues pertaining to the monetary compensation for mental harassment suffered by bank customers, the Ombudsmen suggested yesterday.

Deliberation in the conference suggested that banks may also offer long-term fixed rate housing loans to customers.

They also said lenders may address their asset liability mismatch (ALM) issues by recourse to the Interest Rate Swaps (IRS) market.

Floating rate loans pass on the interest rate risk from banks, which are much better placed to manage it, to borrowers and, thus, banks only substitute interest rate risk with potential credit risk, the Ombudsmen noted.

The banks will, however, be free to recover or charge appropriate pre-payment penalties in the case of fixed rate  loans, the 10 action points to improve customer service said.

In his his inaugural remarks RBI Governor D Subbarao said "Often, prevention was better than cure. In customer service area too, rendering good customer service was like 'prevention' and was better than the 'cure' which was the various grievances redressal mechanisms."

He also asked do all banks have customer grievances redressal officers and noted that at that level are the most important terms and conditions explained to customers before they signed the documents.

Meanwhile, Minister of State for Finance Namo Narain Meena in a written response in the Rajya Sabha Tuesday said the government in May 2010, advised PSBs, IBA and National Housing Bank that no pre-payment charges may be levied by the lending institutions when the loan amount is paid by borrowers out of their own funds.

If any pre-payment charges are to be imposed on housing loans, the same need to be reasonable and transparent and not out of line with the average cost of providing these services, Meena said.

The PSBs have reported that by and large they do not levy any pre-payment charges when the amount is paid by the borrowers from their own sources, the minister said.

India's growth may temper to 7%, rate hikes to go on: Deloitte

The Reserve Bank of India is expected to continue with the rate hikes until inflation comes down to around 6 percent, while economic growth could temper to as low as 7 percent, according to a report by leading consulting firm Deloitte.

"Inflation is unlikely to subside in the near term, and the Reserve Bank of India will probably continue raising interest rates until inflation stabilizes around 6 percent," said the Deloitte global economic outlook third-quarter report released Thursday.

"Costlier credit could also lead to a drop in investment activity through the year. Consequently, GDP growth for the current fiscal year could be as low as 7 percent," it added.

Inflation, based on whole sale prices, was recorded at 9.22 percent in July, while latest data released showed that food inflation had risen over double digits, at 10.05 percent for the week ended Aug 20.

The report added that unless India's fiscal situation improved, it is unlikely that its economic challenges will be alleviated in the coming year.

The first quarter of the current fiscal saw gross domestic product (GDP) increasing the slowest in six quarters at 7.7 percent. The government has targeted 9 percent growth  in 2011-12.

The report also said that the department of industry policy, under the commerce and industry ministry, had prepared a draft proposal for allowing 51 percent foreign direct investment (FDI) in multi-brand retail.

FDI in the retail sector is likely to improve distribution networks and supply chain efficiencies and over time help reduce food inflation, the consultancy said.

High inflation coupled with global economic uncertainty are some of the key challenges faced by the Indian economy in the current fiscal.

"There are concerns on the fallout of global uncertainty on the domestic economy and the success of India's'growth story," said Anis Chakravarty, director Deloitte Haskins and Sells.

"The central bank stressed that its primary concern is price stability and that it is willing to sacrifice growth in order to rein in inflation. Couple this with India's fiscal and current account deficit quandaries and the country's economic problems seem to magnify," he added.

The government's oil subsidy bill alone is likely to the tune of Rs.1.2 trillion (Rs.120,000 crore) this fiscal, while it is expected to suffer a loss in customs and excise duties worth Rs.490 billion (Rs.49,000 crore).

"To compound matters, the rise in the price of diesel, kerosene and cooking gas is likely to stoke inflation," said the Deloitte report.

RBI may hike rates as food inflation surges to 10.05%

After a gap of over five months, food inflation entered the double-digit zone at 10.05 per cent for the week ended August 20, with Finance Minister Pranab Mukherjee describing the trend as "disturbing" and experts saying RBI may go in for another rate hike.

The weekly food inflation, measured by Wholesale Price Index (WPI), went up from 9.80 per cent on account of expensive onion, vegetables, fruits and protein-based items.

The last time food inflation crossed 10 per cent was in the week ended March 12.

"Food inflation has gone up... This is really disturbing. We shall have to ensure and remove the supply constraints on food items," Mukherjee told reporters here.

As per the official data released today, prices of onion soared by 57.01 per cent year-on-year and potato rose by 13.31 per cent during the week under review.

Fruits became dearer by 21.58 per cent and vegetables overall by 15.78 on an annual basis.

Prices of protein rich items, egg, meat and fish were up 12.62 per cent, while milk and cereals became dearer by 9.22 per cent and 4.64 per cent respectively.

Attributing the jump in food inflation to seasonal factors, experts opined it could again force the Reserve Bank to hike interest rate during its mid-quarter monetary policy review scheduled on September 16.

"With headline inflation remaining well above 9 per cent, we expect RBI to raise key policy rates by 25 basis points at its next mid-quarterly review," Crisil chief economist D K Joshi said.

Food items constitutes about 14 per cent to the WPI.