RBI suggests measures to make bank loan processes customer-friendly

Penalty for banks that harass customers by delaying loan transfer from one bank to the other, scrapping of the processing fee for shifting within the same bank from one type of loan to another, and an industry benchmark base rate for borrowers are some of the recommendations of a central bank panel on pricing of loans to make processes smoother for retail borrowers.

"Indian Banks' Association should evolve a set of guidelines for easier and quicker transfer of loans, particularly mortgage/housing loans," said a report submitted by a panel headed by former deputy governor Anand Sinha. "There could also be penalties for banks which do not cooperate with borrowers in this regard.''

Banks would also need to give their customers the choice of prepayment and exiting a loan, if the recommendations of the committee are implemented.

In line with the recommendations, banks would need to offer customers the benefit of interest reduction on the principal in case of prepayment of loans.

According to the committee the benefit, "should be given on the day the money is received by the bank without waiting for the next EMI cycle date to effect the credit.''

To ensure customer convenience, the committee had also recommended that banks reset the interest rate charged on floating rate loan on dates that were fixed in the covenant, irrespective of changes made to the base rate within the reset period.

The committee suggested that commercial banks, particularly those whose weighted average maturity of deposits was on the lower side, move towards computing the base rate on the basis of marginal cost of funds.

This might result in greater transparency in pricing, less customer complaints, better transmission of changes in the policy rate and improved asset liability management at banks, the draft report of the committee on 'Working Group on Pricing of Credit', said.

If banks used weighted average cost of funds because of their deposits profile or any other methodology that might result in differentiation between old and new customers, the boards of banks should ensure that this differentiation did not lead to any discrimination amongst borrowers, the draft report said.

In addition to factors like specific operating cost, credit risk premium and tenor premium, broad factors, such as, competition, business strategy and customer relationship too were used to determine the spread.

According to the suggestions of the RBI committee, the banks needed to have a board approved policy delineating these components. The board of a bank needed to ensure that any price differentiation was consistent with the bank's credit pricing policy factoring Risk Adjusted Return on Capital (RAROC).