Banks told to disclose loan reference rate to customers

They also have to reveal terms and conditions for loans, credit cards.

Banks will now have to disclose the reference rate to which the lending rate is linked while extending loans to retail customers. They will also have to convey to the customer the most important terms and conditions for credit cards and loans.

According to the revised code on banks’ commitment to customers issued by the Banking Codes and Standards Board of India: “If a customer has borrowed against a floating rate of interest, he will be informed of the reference rate to which his floating rate of interest is anchored. The bank will have to disclose on its website the changes in the reference rate.” Banks will also have to inform the customer if there is an option to convert the floating rate to a fixed one and vice versa and the fee for exercising such an option.

The BCSBI, which has 79 member banks, had prepared the original code in 2006. According to the revised code, banks will have to disclose the minimum interest clause as well as the reset clause, among other things, at the time of offering the product. They will also have take the consent of the customers before disbursing any credit that was offered or accepted over the phone. Banks have also been told to inform joint account holders before classifying any account as dormant or inoperative.

The BCSBI would open credit counselling services in Mumbai from October 1, Chairman KJ Udeshi said while releasing the new code today.

KC Chakrabarty, deputy governor of the Reserve Bank of India (RBI), said treating customers fairly would be one of the pillars of future regulation.

“Banks must understand that many of them are surviving only because of regulation, because we don't allow everybody to enter the field. We have a responsibility towards the customer,” said Chakrabarty. RBI is planning to introduce a system under which borrowers get a statement of transactions related to their accounts at least once in a year.

Commenting that RBI was in discussions with the Indian Banks Association on this, Chakrabarty said, “Don't you think that as a borrower, we should get at least one statement in a year to know the transactions is our account.”

He said RBI might ask banks to pay charges to the customer if a cheque is not cleared despite sufficient balance in the account.