How to compel rbi to take action against a bank violating rbi rules to exploit borrowers
Anil Kr Garg
(Querist) 07 April 2014
This query is : Resolved
I have availed a mortgage loan from HDFC Bank. The interest was supposed to be 2% discount over their benchmark prime lending rate which was supposed to be revised according to revision by RBI from time to time. In practice, HDFC Bank increased PLR when RBI increased its repo rate, but did not reduce it when RBI reduced it. Consequently, spread of my effective rate over RBI's rate increased by 3.75% in two years!
I found master-circulars of RBI clearly saying that (i) floating rate loans must not be linked to bank's internal PLR and must always be linked to an external rate, (ii) there must be an enabling clause in loan agreement stating that interest rate will be revised both upwards and downwards in accordance with revision in rate of interest by RBI from time to time, and (iii) (press release) there will be no prepayment charges on floating rate loan products.
Yet, HDFC is flouting all the above requirements.
DRT is not concerned with such issues and cannot order a bank to comply with RBI rules.
I complained to Ombudsman who refused to intervene. Then I complained to Governor, RBI but he refused to intervene as well. I have filed writ in high court including RBI as a party but RBI is not appearing in court.
Pls advise how can we compel RBI to take action against HDFC.
Matter concerns most borrowers and hence, the trouble taken to respond in detail might serve a public interest as well.
ajay sethi
(Expert) 07 April 2014
if you have filed writ petition in HC wait for orders from court . if RBi is not appearing you will have a walk over
Guest
(Expert) 07 April 2014
Guidelines of the RBI are of general nature, not specifically directing the banks not to increase the interest rates on loan beyond specific percentage above the RBI rates. Your agreement with the HDFC Bank would definitely contain an enabling clause to revise interest rate both upwards and downwards in accordance with revision in rate of interest by RBI from time to time.
So, your winning of the case seems to be doubtful on that plea, as your loan is governed by the agreement entered in to by you with the bank. Better examine in detail the contents of your agreement before launching a tirade against the bank.
Sourav Das
(Expert) 07 April 2014
if RBI is not responding, then u'll get order ex parte in your favor.
Guest
(Expert) 08 April 2014
Mr. Saurav,
Would you please like to clarify, even if RBI does not respond, on what ground the querist would be able to get ex-parte order, when the case lies against HDFC Bank? Would not the querist as the prosecutor be required to prove violation, if any, of the law of land? Is HDFC Bank also expected not to contest the case, if filed against the bank?
Moreover, guidelines are not of statutory nature, these are issued merely for the guidance of the banks for the sake of uniformity in the procedures to be adopted by various banks.
I hope, as an advocate of the Supreme Court, your clarification would be of immense value for the querist as well as the community members of the LCI at large.
Anil Kr Garg
(Querist) 08 April 2014
Thanks for replying. Let me clarify that master-circulars are binding on commercial banks both under Banking regulations act as well as clear mentioning in circular itself. Previous caselaws also hold that even an advisory by RBI is binding,and "May" will have effect of "shall". Hence, HDFC is bound to comply with master-circulars and is undoubtedly guilty of violation by omitting enabling clause and linking interest rates to internal PLR instead of external rate. Yes, some courts might take view that once agreement is signed, nothing else matters but that will be unfortunate because agreement itself is violating RBI rules and hence, illegal ab initio. Considering that borrowers simply have to sign agreement printed by lender, it is not like an agreement negotiated between two parties of free will and consent.
Order against RBI will be justified because RBI has refused to ensure compliance with its regulations and refused to act despite specific complaint to us, and thereby, is guilty of abatement with HDFC.
Whether High Court takes this view is another matter.
I wish to find some way of compelling RBI to ensure compliance and act against HDFC Bank for deliberate violation which is punishable under Banking Regulations Act itself.
Pls advise how best to get RBI to act.
Sourav Das
(Expert) 08 April 2014
dear Mr Dhingra,
RBI is a public authority, so there is no question of maintainability of writ petition against RBI.
in the present writ petition, RBI is a party and is not responding. naturally, petitioner will get order ex parte of his prayer against RBI.
yes, first and foremost, petitioner have to prove either statutory violation or violation of his fundamental rights or constitutional rights.
Guest
(Expert) 08 April 2014
Dear Mr. Garg,
You can feel free to sue the RBI, if you think that RBI, not the HDFC Bank, is responsible for some violations by the HDFC Bank. That can give you an added advantage if you are in hold of some case laws for holding RBI responsible for violations by the private or the public banks.
Bt the way, what type of order against RBI you can get from the court for the offence, if any, of the HDFC Bank?
Guest
(Expert) 08 April 2014
Mr. Saurav,
Thanks for your confirmation of my contention that petition against RBI cannot be maintained. But, even if RBI is made party to the case, the RBI's role would just be restricted to confirm whether HDFC bank made any violation or not. Question of RBI not responding on being a party does not arise. RBI being made party means the Government of India is being made a party and to represent the Government organisations there exists a big army of Government counsels throughout India. So, to think abour RBI not responding is a very remote idea. But, even if remotely considered the RBI not responding, the HDFC cannot be said to be not defending its position, while the buden of proof, doubtlessly, would rest on the petioner, Mr. Anil Kumar Garg.
Sudhir Kumar, Advocate
(Expert) 10 April 2014
you already have file WP you already have a lawyer and a heavy bunch of papers.
For useful advise on need to see all these papers.
Rajendra K Goyal
(Expert) 11 April 2014
In your loan agreement you must have agreed to rate on interest linked with the benchmark rate of the Bank to be reviewed quarterly based on the ALM position of the Bank. I reproduce few lines from master circular of RBI on Interest rate (You are advised to go through full document)
Master Circular
Interest Rates on Advances
RBI/2013-14/ 73 ,DBOD.No.Dir.BC. 15 /13.03.00/2013-14 July 1, 2013
2.4 Floating Rate of Interest on Loans
Banks have the freedom to offer all categories of loans on fixed or floating rates, subject to conformity to their Asset-Liability Management (ALM) guidelines. The methodology of computing the floating rates should be objective, transparent and mutually acceptable to counter parties. The Base Rate could also serve as the reference benchmark rate for floating rate loan products, apart from external market benchmark rates. The floating interest rate based on external benchmarks should, however, be equal to or above the Base Rate at the time of sanction or renewal. This methodology should be adopted for all new loans. In the case of existing loans of longer / fixed tenure, banks should reset the floating rates according to the above method at the time of review or renewal of loan accounts, after obtaining the consent of the concerned borrower/s.
Guidelines on Benchmark Prime Lending Rate (BPLR) applicable to loans sanctioned upto June 30, 2010 (Paragraph 2.3.6):
With effect from October 18, 1994, RBI has deregulated the interest rates on advances above Rupees two lakh and the rates of interest on such advances are determined by the banks themselves subject to BPLR and Spread guidelines. For credit limits up to Rupees two lakh, banks should charge interest not exceeding their BPLR. Keeping in view the international practice and to provide operational flexibility to commercial banks in deciding their lending rates, banks can offer loans at below BPLR to exporters or other creditworthy borrowers, including public enterprises, on the basis of a transparent and objective policy approved by their respective Boards. Banks will continue to declare the maximum spread of interest rates over BPLR.
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Banks are free to determine the rates of interest without reference to BPLR and regardless of the size in respect of loans for purchase of consumer durables, loans to individuals against shares and debentures / bonds, other non-priority sector personal loans, etc.
Anil Kr Garg
(Querist) 13 April 2014
Dear Goyal sb,
It is true that banks are free to fix their interest rates but my reference to the master circular is about subsequent changes in the rates. For this purpose, the master circular has stipulated that interest rates should be linked to an external source, and that agreement must include an enabling clause. Therefore, dispute is not about the rate that was fixed at the time of sanction, but about subsequent changes.
The contention that agreement once signed by both parties is final, should be subject to other laws defining whether it was violating any other rules. If so, it should be not regarded as final. Besides, one party being dominant also makes a difference. Recently, CCI enforced changes in agreement in DLF case on this ground despite signing of agreement by both parties.
Thanking you, and with best regards,
Guest
(Expert) 13 April 2014
Any parallel between the business activities of a builder (DLF) and a bank?
Anil Kr Garg
(Querist) 14 April 2014
Sir,
I think similarity between DLF case and this one is to destroy the argument that once agreement is signed, it must prevail regardless of it not complying wit stipulations of master circular. DLF case holds that even if agreement is signed, it must be legitimate and if one party is far too dominant (like monopolies), it cannot be assumed that a party agreed to everything contained therein of his free will and hence, agreement ought to be binding on him. In our case, I believe that bank was a dominant party and borrower relying on rules/regulations governing bank and trust that it will follow them. Bank violating these rules should not be allowed to argue binding nature of agreement to the extent it is violating terms of master circular.
Thanks and regards,
Guest
(Expert) 14 April 2014
Mr. Garg,
It seems you feel that experts are not guiding you correctly. In that case only two options remain with you, (1) use your own wisdom, or (2) hire services of some local professional with whom you may speak to your mind to your full satisfaction.
There is no use to stretch the thread too far on this page with extraneous arguments. Posting your distracted perceptions on this page may not get you any kind of relief from the HDFC Bank or the RBI. Even if some expert agrees with your pleadings that may also not help you in your case with the bank. You are to convince the bank or the RBI and if not satisfied with any of them you may better file a case in the competent court and convince the judge of the case about your views.
However, if you are interested in gathering general views of the audience on the issue, you can post this problem in the forum section, where you can expect more participants.
