Dear Sir
1. I had taken a home loan of Rs 28, 80, 000 from BHW Birla Home Finance in October towards purchase of a house. This loan was taken under variable interest rate scheme at 9 % interest rate. It was known at the time of taking loan that interest rates will vary as per market conditions.
2. The repayment of loan was scheduled for a period of 20 years in step up emi scheme whereby it was agreed that the bank will charge only interest for the first two years and after that emi will increase and principal component deduction will also start. Following was the initial repayment schedule for 20 years or 360 months
• First 24 months &-- - Rs 21500/-
• Next 36 months&- Rs 23760/-
• Next 60 months&&- Rs 25913/-
• Next 120 months&-- Rs 30599/-
3. After 3 months of loan the bank started increasing interest rates. Following was the increase schedule
• First increase Jan by 0.5 % &-- Net Rate 9.5 %
• Second increase March by 1% &-- Net Rate 10.5 %
• Third increase May by 1 % &-- Net Rate 11.5 %
This shows that within 7 months of my loan the interest rate was increased by 2.5 %. Everytime i was told that this is being done owing to tight monetary policy conditions. I kept paying my emi’s uninterrupted.
4. The increase in interest rate was adjusted by increasing the tenure of the loan whereas the monthly emi remained same.
5. It is worth mentioning that between Oct to May my interest rates were increased by 2.5 %, where as the RBI increased it’s repo rate from 7% to 7.75 %, an effective increase of 0.75 % only during this period.
6. The next increase in the interest rates was affected from 1st July.
• Fourth increase in July by 0.75% && Net Rate 12.25%
• Fifth increase in Sep 2008 by 0.5 % && Net Rate 12.75 %
7. Here again it is interesting to note that the RBI increased repo rate by 75 bps in June and 50 bps in Aug. Hence it can be understood that interest rate increase by the bank was not just exactly in line with RBI increase of repo rate but also it was made effective immediately after RBI announcement.
8. After the increase in interest rate in July I was informed by the bank that increased interest rate burden can no longer be put on my loan tenure hence they are increasing the emi to Rs 27500 from present RS 21600. This was done in 21st month of my loan which was in violation of the initial commitment of step up scheme that my loan emi will not be disturbed for first 24 months.
9. I agreed to this drastic increase of the emi as suggested by the bank and kept paying all instalments without any protest.
10. Here again it is worth mentioning that in their letter no NOIDA/19681/F/Housing/2255 dated Aug 28 they have clearly mentioned that ‘’ Just to bring to your kind attention that RBI has further increased the CRR and REPO RATE by 25 bps and 50 bps respectively, in its policy announcement dated July 29. As a result almost all banks and Housing Finance Companies have moved their PLR’s up in line
with the increase in Repo rates.’’ In this letter it was informed that interest rates will be increased be 0.5 % from 1st September.
11. At the end of 24 months of my loan, my emi was again increased to Rs 29900 . In the increase letter dated Aug, 28 I was surprised to find that after paying my loan for 2 years and Rs 5, 36, 100 and 2 increments in my emi my loan tenure stood at further 33 years. I was getting a feeling at this stage that whether I will ever be able to finish this loan in my lifetime if the emi and tenure both kept increasing exponentially. Till this date the only decrease in the loan amount was of Rs 12590, which I had paid in Feb towards part payment of my loan. Rest everything I paid was only the interest.
12. As per the original step up scheme from 25th month onwards my principal deduction should have been started in my emi. I was never informed by the bank that my principal deduction has yet not started where as I remained under the impression that my principal has already started reducing from 25th Month i.e. Oct.
13. This was also the time when interest rates started softening across the board. In just 3 months time between Oct and Dec the RBI reduced repo by a whopping 3.5 % . It was brought down from 9 % in Sep 2008 to 5.5% by Dec.
14. It is worth noting that between Oct (time of start of loan) and Sep 2008 the repo rate was increased by RBI from 7% to 9%, an increase of 200 bps, where as my bank increased the interest rates by 3.75 % during this period.
15. It was very natural to expect that the drastic decrease in repo rate by RBI will also result in my interest rate reduction. But this never happened.
16. While RBI reduced repo rate by 3.5 % between Oct and Dec the first reduction in the interest rates by my bank was effected in March and that too of a meager 0.5 % .
17. Second reduction was brought still later in July and that too by only 0.5 %.
18.By now it was getting frustrating and high interest rates despite heavy reduction by RBI was fast becoming untolerable. To add salt to the injury was the provisional income tax certificate for the year 10 dated 15th May which I received around 18th May. To my utter surprise I found that until the 30th month there was no deduction of principal amount from my emi
19. .Also after going through the provisional statement I realized that in the financial year 10 I will pay Rs 3, 73, 892 as emi out of which my principal component will be only Rs 8062. This meant that after paying Rs 10, 89, 000 to the bank my principal will be reduced by a mere 9000 Rs. When I protested to the bank I was told that If I am not satisfied I should get my loan shifted to some other bank which can offer lower interest rates.
20. At this stage for the first time after 31 months of my loan I decided to stop making the payments to the bank. I spoke to several people in the bank but I was not even given proper hearing. Everytime I was told that if I don’t pay the emi strict legal action will be taken against me.
21. I told the bank that till the time my grievance is not looked into I will not resume the emi’s. The bank did not offer any solution to the problem instead slapped a notice under Sec 13 (2) of Securitisation act against me in Aug. It was accompanied with a criminal notice of check bouncing.
i continue to fight my case with this bank . i am also planning to file a PIL in Supreme Court on this subject. all those who are facing similar issue are requested to join me in the petition.
rgs
Rohit Mathur
9811404015
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