Explain penalty, competition panel tells banks

The commission, according to official sources, has sent notices to major home loan players after examining a report of Director General (Investigations) which found evidences against banks for misusing their dominant position and entering into anti-competitive agreements.

“We have sent showcause notices to 20 banks including ICICI Bank, HDFC, LIC Housing Finance, Deutsche Postbank and the Indian Banks’ Association. We have also sensitised the Reserve Bank of India on how the practice of charging pre-payment penalty is hurting consumers,” a senior CCI official told PTI.

The commission was scrutinising a complaint filed by a customer against the practice by these banks.

However, spokespersons of ICICI Bank, HDFC and LIC Housing Finance could not be reached for comments. The move gives hopes to thousands of borrowers of foreclosing their housing loans without paying penalty. If the penalty is lifted, it may also lead to borrowers’ shifting their credit to those lenders offering lower interest.
The CCI, official said, could also penalise the lenders for adopting such practices to discourage customers from pre-paying home loans or the the practice could be banned across the industry.

Market leader HDFC, for example, currently levies pre-payment charges ranging between zero and two per cent of the amount pre-paid by a borrower.

The pre-payment penalties are imposed to discourage customers from retiring their debts before the scheduled date.

Some lenders charge only if the customer seeks refinancing the loan by taking money at a lower rate from some other entity.

Housing Loan outstanding at the end of March 2009, rose to Rs 2,63,235 crore, compared to Rs 2,52,932 crore at the end of 2007-08.

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