Bank portability: A good suggestion

The RBI could pass rules to help customers who want to shift their loan from one bank to another

Lately, bank charges and unfair trade practices have been in the news. In fact, an online petition has been started by a group of professionals, urging the Reserve Bank of India (RBI) governor to stop banks from fleecing depositors and borrowers alike. The petition has already garnered 100,000-plus signatures. Against this background, RBI Deputy Governor S S Mundra’s statement on Tuesday holds much relevance. His suggestion that RBI should allow portability of accounts so that the aggrieved consumer can move to another bank is a good solution.

While providing portability remains a desirable objective, it may take some time as it has to overcome the twin hurdles of resistance from banks as well as technical challenges. Meanwhile, RBI could easily ensure mobility (or ease of moving) by simply passing appropriate regulations to overcome the hurdles that banks have deliberately created to stop customers from migrating to another bank.

Sample this: A home loan customer who wishes to move his home loan from the existing lender who is charging him a higher rate to one offering a lower rate faces many hurdles. To move a home loan to another lender, the borrower needs a certificate from his existing lender about the outstanding loan amount as well as the list of property documents held by it. Most banks insist that the borrower come personally to their loan office, and not the nearest branch, to request this certificate from them. They refuse to accept requests electronically, by email, by registered post or even a hand delivery by a messenger. This is the single biggest hurdle created by banks to prevent customers from switching. Even after the loan is taken over by another bank, some of them will accept the pre-payment cheque only from the borrower himself. And finally, they will hand over the property documents to the borrower personally.

Some of them refuse to honour even notarised power of attorney granted to lawyers/officials of the new lender to collect the original property documents on behalf of the borrower after the pre-payment is realised. The lenders know that very few customers will brave three or more personal trips to far-flung loan centres to shift their loans.

This problem can be solved by a simple directive from the RBI allowing requests to be accepted electronically through net banking or registered email ID of the borrower and by providing for strict turnaround times for responses. This requires no changes in software. It only requires an iron will and firm implementation to ensure that harassed home loan borrowers are not made to run around.

If the bank/housing finance company can send loan documents over email for tax purposes, which is acceptable by the income-tax department as well, there is no reason why they shouldn’t accept transfer requests from the same mail ID. Portability or easy mobility may provide relief to borrowers from usurious charges, but for depositors it will only provide partial relief as all banks raise charges together as a cartel.
 

The author is a Sebi-registered investment advisor and a shareholder in a loan distribution company. He is one of the petitioners to the RBI.