In a shocking development the pioneering,home loan,market leader HDFC has increased its home,loan,lending rates for both new and existing home loan consumers. The rate rise is not that shocking at it was clearly on the anvil. But what is surprising rather shocking is that for old consumers the rate goes up by a steep 0.75% whereas new customers will only pay an extra 0.50%.
So why lenders can afford this blas © attitude about their existing consumers?
Firstly, consumers are themselves to blame. Most of them are blissfully unaware about the increase in rates, as they never bother to read the communications that come from the lenders. The rate increases are normally carried out by way of increase in the balance loan tenure and not EMI. This is the main reason why customers remain blissfully unaware of the extra interest that they are paying. They realize this only towards the end of the original loan tenure when they go back and ask for their documents back. That is when they realize that it is still a long way off before the loan will be paid off. Even this stage is never reached for most consumers since they tend to fully pre-pay the loan from time to time and blindly trust the lenders calculations for the balance loan outstanding. Thus lenders can get away with this unfair practice due to the trust that they enjoy with the customers and the customer’s blissful ignorance. Even the customers who become aware of this injustice (and that number is increasing by leaps and bounds, thanks to the media) rant and rave about the fact that the Government or RBI (the sarkar is Maai Baap syndrome) is doing nothing about this injustice. They do not take the most obvious action that will force the lenders on their knees. They should shift their loan pro-actively to another lender who will give them a lower rate since he is a new customer for them. But consumers prefer not to do the hard work themselves and to let somebody else do the work for them by expecting the Maai Baap sarkar to it for them
The regulators also can play a big role in curbing this injustice. Initially somehow the entire thrust of regulation was on protecting the depositor’s interest only. Our overall tradition of not borrowing meant that the number of borrowers was low and the general thinking was that they deserved to pay more for daring to break this tradition. Now of course this has changed dramatically as the middle classes have realised that there is nothing wrong in buying homes by using, Home loans,. RBI has already ushered in the Base Rate regime that should hopefully provide a better leverage to existing loan consumers to get rates that are more or less in line with what new consumers with an equivalent risk profile will get from the same bank. One hopes that National Housing Bank, which regulates housing finance companies such as HDFC and,LIC,Housing Finance, will also bring out similar regulation. The regulators must also make sure that such regulation is followed. In my personal capacity I am currently trying to make one of the largest banks in the country follow the Base Rate regulation for an overdraft facility that I have from them. In a renewal that happened in August 2010 they have continued to link the rate to their old opaque reference rate and not to their Base Rate. In my case they are likely to fall in line due to my persistence in following it up with the banking ombudsman. However I have demanded exemplary damages for the blatant disregard of the RBI regulations. This I am unlikely to get given the benign attitude towards violation of consumer facing regulations (since that does not affect the stability of the overall credit system). This only encourages the lenders to continue to flout the rules and get off by paying a small fine every time a persistent customer like me forces them to follow the rules.
Probably it should be easier for the regulator to enforce the following regulations :
a)Making it compulsory for the lenders to increase EMIs when the interest rate increases thus making consumers aware that the interest rates have increased.,b)Laying down the exact sequence of events to be followed when the customer wants to shift his loan from one lender to another so that existing lenders are prevented from creating roadblocks during the transfer process. This will enable the consumers to get a better deal from a new lender.
In the meantime we, as consumers, should quit moaning about the unfair system and take pro-active steps to shift our,loans,. If enough of us wake up and shift to new lenders, we will not need the Maai Baap sarkar or regulator to protect our interest.,We will be quite capable of protecting ourselves, thank you very much!”