Banks are worried about the competition commission’s interference on homeloan prepayment penalty subject as they are worried that it would force their costs, hike risk and also increase the lending rates.
Last month, Competition Commission of India, whose aim is to uphold and help competition, sent notices to atleast 15 banks, other financial institutions and Indian Banks’ Association asking clarification on the reason they fine borrowers opting for loan foreclosure. It said loan prepayment fines will restrain the competition in the homeloan segment, thereby restricting the prospects of borrower to change over to another lender.
The banks involved in this matter include SBI, ICICI Bank, Axis Bank, Punjab National Bank, Canara Bank, Indian Overseas Bank, Indian Bank, Oriental Bank of Commerce, HDFC Bank as well as HDFC and LIC Housing Finance.
From these, most have already sent their responses to CCI explaining that eradication of prepayment penalty will lead to more lending risk and lead to asset-liability disparity in banks.
IBA, thinks that the prepayment penalty is not in the violation of laws of competition. Also if CCI insists that banks must give up fining foreclosures, banks will be force to raise lending rates by atleast 0.25% in order to protect themselves.
IBA is expected to answer to commission’s notice this week, the official said.
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