If you have taken a loan on floating rate of interest, get ready to pay a variable EMI as the National Consumer Disputes Redressal Commission (NCDRC), New Delhi, has observed in a recent judgement that a bank needn’t require to inform its borrowers about the increase or decrease in interest rates in such cases.
The NCDRC verdict came in a case traced back to 2019 when an aggrieved customer approached the State Commission, New Delhi, against ICICI Bank.
The Case
Vishnu Bansal, the complainant, had taken a home loan of Rs 30,74,100 on floating rate of interest from ICICI Bank in November 2005. As per the loan agreement executed between the bank and the complainant on 30.11.2005, the loan was to be repaid in 240 equated monthly installments (EMIs) of Rs 24,297 each.
Bansal, in his complaint, said that the bank initially charged interest at the rate of 7.25 per cent per annum but later on it increased the rate to 8.75 per cent without intimating or taking his consent. Subsequently, the rate was again raised to 12.25 per cent and the tenure was also increased from 240 months to 331 months.
By the time Bansal foreclosed his loan account with ICICI Bank and went to another bank, an extra amount of Rs 1,62,093 had already been charged. Bansal first approached the bank about his grievance and then the banking ombudsman on 13.02.2010, but without any satisfactory result.
Initial Verdict
When approached, the District Commission returned his complaint on ground of lack of pecuniary jurisdiction. He then approached the State Commission with his complaint. The State Commission held that even if the Opposite Party has been given the right to change the rate of interest charged on the loan, it does not automatically confer a power upon the Opposite party to increase or decrease of interest without apprising the borrower/Complainant about the change in interest charged or the number of EMIs.
The State Commission also directed ICICI Bank to pay back Rs 1,62,093 along with interest in addition to an aggregate amount of Rs 1 lakh towards compensation and costs.
Aggrieved by the decision of the State Commission, ICICI Bank filed an appeal before the NCDRC.
The NCDRC Verdict
The NCDRC upheld the bank’s appeal and observed that “the bank was well within its rights to increase or decrease the rate of interest” as per the floating rate of interest.
Setting aside the order of the State Commission, NCDRC presiding member Dinesh Singh and member Karuna Nand Bajpayee, in the judgement, said, “A bank can increase or decrease the rate of interest under the floating rate of interest provided for in the loan agreement executed between the bank and the complainant and any additional or further consent from the complainant was not required, the same having been agreed to in the loan agreement itself.”
“There is nothing on record to show that either the bank had fixed the rates of interest in any erroneous way, contrary to the principles and the guidelines applicable or had differentiated between similar situate borrowers in this respect,” the order further added.
NCDRC further observed that the bank placed its relevant notifications in the public domain on its website and also sent reset letters to the borrowers including the complainant from time to time whenever it increased or decreased the rate of interest.
While allowing the appeal filed by the bank, the NCDRC said that the bank is ready to pay a sum of Rs 1 lakh to the customer only as a “goodwill and service gesture” without any acceptance or concession of “deficiency” or “unfair trade practice” on its part.
Conclusion
As per the NCDRC verdict, in case you have taken a loan on floating rate of interest, you should track the changes in interest rates and be prepared for paying a higher EMI and/or increased number of installments in case of a rate hike.
To avoid a variable EMI, you should opt for a loan at a fixed rate of interest.
