Banking
Rahul Agrawal
(Querist) 30 August 2012
This query is : Resolved
Is there a difference between foreclosure charges and prepayment charges.
I have a CC account and i want to close it, the bank is demanding for foreclosure charges as per sanction letter.
I am arguing that my account is not foreclosed as i have not defaulted any payment.
I want to know whether i am right or wrong
c.p.s. ramachary
(Expert) 31 August 2012
Dear Mr. Rahul,
Foreclosure is some thing different from pre-closure / pre-payment of loan by borrower before the agreed date. Foreclosure is right of lender who secured his debt by mortgage. Pre-closure is right of borrower who wish to close his loan account. Therefore you are not right in your mis-conceived argument.
malipeddi jaggarao
(Expert) 31 August 2012
Pre-payment term applies to the loan which is repaid by installments. If the loan is repaid before completion of schedule of repayments, some institutions/banks charge pre-payment charges. Whereas in the case of running accounts like cash credit/over draft, there is no pre-payment as the account holder has right to withdraw, redeposit during the sanction period of such facility. In your case, it is cash credit account. It should have been sanctioned for a specific period. After the expiry of specific period bank would ask you to submit the financial statements and basing on its assessment it may or may not continue the facility. Generally such sanctions are for one year and continuation of facility is subject to annual review. If you wish to close the account before the due date of annual review it is called fore-closure and banks do charge for fore-closures as they have to reserve the funds for a specific period for your use irrespective of utilization in your account. Fore-closure effects Asset-Liability Management of the financial institution.
Why do you fore-closure the cash credit? Are you going for higher limits to some other institution? If not, you need not close the account before annual review, you can keep credit balance in your account to escape the fore-closure charges. In such case of also some banks levy commitment charges for non-usage of funds.
Rahul Agrawal
(Querist) 31 August 2012
Dear Sir
Thanks for your opinion. I would also like to know.
In my case my sanction letter is dated 03.08.2011. It is for 12 months and 12 months is over. there is a clause in the sanction letter that foreclosure charges will be charged @ 2% if within 12 months and 1% for balance of the months.
I asked them for enhancement. They did not apporve it. Another bank is providing me higher limit. Now I dont want to renew the account and want to close it. They are charging me 1% of sanctioned amount towards foreclosure charges. They have also charged me previously 1% towards commitment charges for non-utilization of funds.I wanted to know whether the bank is right on doing so.
Devajyoti Barman
(Expert) 31 August 2012
After the Circular of RBI, no Bank can charge any penalty for pre payment of loan.
Lodge complaint with the Banking Ombudsman
RAJU O.F.,
(Expert) 01 September 2012
As the sanctioned period of CC is over, you are able to close the a/c and to approach another bank. Make the payments demanded by the bank with protest and get back all the security documents and no due certificate. After that, if you feel aggrieved, approach Banking Ombudsman to get back the excess money extracted by the bank.
malipeddi jaggarao
(Expert) 01 September 2012
Mr.Rahul, since you have posted me a private message I have sent you the reply directly. However, there is no need to post private messages. If it is discussed in this forum, it will be beneficial for everybody. At the same time, some experts can correct the advice with their experience. However, please look your inbox for reply.
Rahul Agrawal
(Querist) 01 September 2012
Thank you very much Mr. Malipeddi Jaggarao
what evere I have quoted are true. Saction letter date is 3.8.11 and for a period of 12 months.
My utilization was very low during the last one year and for that they have charged me 1% of the unutilized portion.
I have asked for an enhancement on 1.6.2011 as now i had new business plans.
But till date they never replied to my letter for enhancement. Simultaneously i approached another bank for a limit. The other bank sanctioned me a higher limit and also with lower interest rate.
i informed my bankers that if they do what other bank is offering me i can retain my acccount. The Manager said yes it will be done within 15 days. I asked them to give it in writing. He denied it.
Then on 10.8.2012 i requested them not to renew my account and close my account. They have charged me renewal fees in June 2012 itself. I requested them to reverse it as I dont want to renew the account. I have not signed any renewal document also.
They accepted to reverse it.
When i went to close the account, they charged me foreclosure charges of 1% of the sanctioned limit and Service Tax @ 12.36%. I wrote a letter to them I pay this charges under protest. The Manager refused to accept the letter. He said to send the letter by RPAD.
In order to get the NDC and closure statement, i paid the amount and have closed the account. Now still i have to get my securities from them.
Can i claim this amount now. Shall i send that letter by RPAD. I am afraid that if i send the letter whether they might not release my security.
Please advise me what to do
