The Competition Commission of India (CCI) has issued notices to 20 banks and the Indian Banks’ Association (IBA) to explain why they charge a penalty for foreclosing housing loans.
“We have given show-cause notices to 20 private and public sector banks as also IBA on the prepayment penalty issue. In the notice, we have said that CCI has found them guilty for cartelizing and fixing penalty rates for consumers who foreclose their loans,” said a CCI official, who did not want to be identified.
The official also said CCI has found substantial evidence that banks are colluding to fix penalty.
According to him, State Bank of India, LIC Housing Finance Ltd, Deutsche Postbank Home Finance Ltd, Housing Development Finance Corp. Ltd and HDFC Bank Ltd are some banks that have been sent notices. They could not be immediately reached by Mint for a comment.
Mint had on 9 November said these companies were being probed. Responding to Mint’s query, LIC Housing Finance director and chief executive R.R. Nair had then said, “We said (in the reply to the CCI) that the prepayment charge is necessary because we borrow money factoring in the period of the loan. A 10-year loan is more expensive than a one-year loan and we borrow according to our asset-liability balance, so if a customer decides to prepay, it creates a gap of 2-3%, which then has to be paid.”
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