Tobacco, smoking are injurious to your interest rates

Rajkot based Peoples Cooperative bank charges 1% additional interest to addicted borrowers

'Tobacco is injurious to health' is a common warning printed on tobacco products and cigarette packs that many choose to ignore on, but little do they know that consumption of tobacco can be injurious to their interest rates. Rajkot People's Cooperative Bank has taken it on itself to drive this message into the consumer's mind; and they are mighty serious about it. It charges an additional one per cent interest rate from any borrower who has any kind of tobacco addiction.

According to the bank, officials of the bank personally meet the borrowers and their family before approving loan to ensure the borrower has no addiction and if found, the borrower is charged additional interests on advances.

"As part of our 'No Addiction' drive, we are taking one per cent extra interest from the borrowers if he or she has any tobacco (gutka etc) or smoking habits.

And this actually works. "Many borrowers have abandoned their year-old addiction and their family members too are happy about it," said Shamjibhai Khunt, chairman of the Bank.

Usually the bank charges 12-14.5 per cent interest for various loans including home, vehicle, personal, business, machinery, overdraft and short, medium and long term loan. On top of this, the bank charges one per cent extra interest rate for the tobacco addicted persons.

Rajkot Peoples Cooperative Bank's official meets the borrower when it get the application for loan. After approval of the loan, the bank requests them to leave their addiction and observe for six months. If the person is unwilling to quit his or her habit, then the bank starts charging extra interest.

Shamjibhai said, "The borrowers have to give written commitment that he will leave addiction in six months. After six months, those who do not quit their addiction, we charge extra interest rate till they change their habit."

While the RBI may not have a direct guideline against smoking or any addiction, the bank said that it has rights to change its bylaws with the approval of the Board members.

Shamjibhai said, "As we are doing it for a good cause, we have never faced any challenges from the regulator or from people."

Interestingly, the bank has not faced any challenge in growing its business because of this peculiar practice. In fact, its advances almost doubled in the last five years from Rs 49 crore to Rs 95 crore. Similarly, bank's deposits also increased by 57 per cent to Rs 168 crore from Rs 107 crore.

'No Addiction' rule is also applicable for the bank employees too. The bank has strict rules for employees too on tobacco and alcohol addiction. Even if bank finds any employee with such addiction it will first warn and also take undated resignation from the employees, who also go through a pay cut if addiction persists.

"The board of the bank has the rights to make rules and regulations for smooth functioning of the bank. As far as this particular rule is concerned, the prospective employee is informed well before his joining and he is inducted in the bank only after he agrees to abide by the rule in writing," Khunt explained.

The small cooperative bank has seven branches in Rajkot district and has 74 employees. So far more than 2,000 people including employees, students, borrowers and friends have gone through de-addiction due to Shamjibhai's rules.