A Joseph (Manager) 29 July 2014

Retrospective interest rate reset

Dear Sirs,

I have taken a HL from SBI in 2005 with fixed rate and there was a clause that this rate will be rest every 3 years. There is another clause "If the Borrower is not agreeable to the revised interest rates so fixed. the Borrower shall request SBI within 15 days of receipt of the notice intimating change in interest rates from SBI, to terminate the loan and shall repay the loan and any other amount due to SBI in full and final settlement in accordance with the provisions of this Agreement relating to prepayment.". (This is copied from the sanction letter.)

SBI didn't reset the interest rate in 2008 or 2011. I was in constant touch with bank officials regarding interest rate. I have some sort of proof that I've taken the provisional and final HL certificates from bank in person and the certificates clearly mention the interest rate. In July 2014, I have received a demand note from SBI saying that "Since the rates could not be re-set in the system for some reasons, which has been done now from the relevant dates..". They are now asking me to pay almost double the existing interest rate from 2008 and 2011. My dues has such been computed to nearly 5 lakhs.

My questions:

1. Am I liable to pay the interest rates which are charged retrospectively?

2. As per our agreement, bank has to give a notice which is not given. Bank has also acknowledged in writing that interest rate was not reset due to "some" reasons. If the bank insists on payment of retrospective dues, do I have a case against the bank?

3. Is bank limiting my options by unilaterally issuing such a demand? For example, if the demand was given in 2008 or 2011 I could have closed/transferred or changed to floating interest rate.

4. SBI has not given any reason on why there were no resets in 2008 and 2014 and how they computed the dues.

For same HL, the bank had made a mistake in their system by not charging interest for a period of 6 months between 2008-09. I had brought this to notice of bank officials verbally by visiting the bank. They had not taken any action at that time. Now (in 2014) they are asking me to pay that interest too. I heard that this may be time barred under Law of Limitation.Please advice.

Note 1: I have not defaulted any EMIs. In fact I have paid many part payments effectively reducing the tenure of the loan from 20 years to 10 years.

Note 2: This is the part 1 of the interest reset clause:

Interest on the loan will be charged per annum on daily reducing balance at monthly rests, subject to interest rate reset at the end of every three years on the basis of our fixed interest rates prevailing then. In the event of a default in payment or any irregularity in account, the Bank reserves the right to levy the higher rate of interest as it deems fit SBI may at its discretion stipulate tile periodicity of computation of interest Further, SBI may at its sole discretion alter the rate of interest suitably and prospectively in the event of major volatility in interest rates during the period of the agreement. Thenceforth the rate of interest varied as aforesaid shall be applicable to the Loan. SBI shall be the sole judge to determine whether such conditions exists or not.

Reply Follow

2 Replies

T. Kalaiselvan, Advocate (Advocate) 01 August 2014

1) The Bank's ruling to charge the difference in interest at the reset rates with retrospective effect is unreasonable and not valid in law especially when it violates its own conditions for loan.

2) Since bank has done this on their own without even a notice and that too for the past periods, it is totally against the natural justice too, you have a case in consumer forum but can protest it in writing to the bank, if they do not listen and stop their demand, exhaust the remedies available before the Banking Ombudsman too before approaching consumer forum.3

3)Yes, bank is wrong by not adhering to their own condition of allowing you the option to close your loan by discharging it on the said event.

4) Charging the left out interest(Old arrears) will not be barred by limitations because the Loan EMI is still being paid, you have to settle the same since you do not have evidence in writing for having reminded the bank at that time.