Prepayment charges on cash credit account
Saurabh Agarwal
(Querist) 18 November 2013
This query is : Resolved
I have a CC Account with ING Vysya with a limit of Rs. 15 crs. I have shifted from this bank to ICICI bank for an enhanced limit. While moving out of ING Vysya I was told I have to oay 2% penal charges on sanctioned limits in case of takeover of facilities. Now they are not releasing my original security documents and asking us to pay the penalty. The said condition is mentioned in the Sanction Letter. My query is whether it is right for banks to charge penal charges on CC account and can they withold the documents this way. I have also repaid the principal and interest amount from my ICICI account. Kindly help me with a solution so that I can take my documents from them since without this ICICI wont sanction me my limits.
ajay sethi
(Expert) 18 November 2013
you are bound to pay penalty as per terms of sanction letter
Saurabh Agarwal
(Querist) 18 November 2013
I agree that it is in the sanction letter. But my point is that no other bank charges such penalty and it is only charged in case of home loans and term loans. Now that I have repaid the principal and interest totally from my own account they are not releasing the security documents. It is nowhere in the agreement or the mortgage deed given that they can withold the documents. So are they rightful to do so? And if I do not want to pay the penalty what is the remedy?
ajay sethi
(Expert) 19 November 2013
when you signed the sanction letter for loan you agreed to be bound by its terms and conditions . hence bound to pay penalty .
complain to RBI against bank if they are witholding original documents
Rajendra K Goyal
(Expert) 19 November 2013
Prepayment charges are not charged on Cash Credit accounts as this type of accounts are payable on demand and are not for specific time like term loan. Take the copy of agreement if any executed and verify any such condition is mentioned in it or not. Take the copy of the Service charges of the bank(RBI instructions to provide online even)and verify whether such charges are as per banks instructions.
File complaint to their Head office,RBI, Banking ombudsman.If no solution received send legal notice and file complaint with the consumer Forum or Permanent Lok Adalat (Public Utility Service) if working in your distt.
Saurabh Agarwal
(Querist) 19 November 2013
Rajendra Sir thanks a lot for your reply.
Sir the condition given in the sanction letter is that in case of takeover 2% penal interest will be charged on the sanction limits. This line is very ambiguous as it doesnt mention the period for which it will be charged etc. Also, we have repaid the amount from our account and it has not been paid by my new bank directly to the former bank. So does this form a takeover or not is my query?
Also, will the RBI be prompt in its action since my limits are held up in ICICI since they require the original security docs to release the balance limit. I am suffering a lot due to this delay.
Saurabh Agarwal
(Querist) 19 November 2013
Sir I just checked the RBI service charges page. ING Vysya does not exist in that page at all.
RAJU O.F.,
(Expert) 19 November 2013
If there was stipulation to pay penal charges in the said circumstances and if you had agreed to the said sanction order, you are liable to pay the commitment charges or penal charges, since the bank could not lend the said amount during the period. Please make payment of the required amount to earlier lender bank so as to get release their property documents for securing loan facility from another bank.
Rajendra K Goyal
(Expert) 19 November 2013
The Service charges of every Bank are on their individual sites and not consolidated at RBI site. Please check.
malipeddi jaggarao
(Expert) 20 November 2013
What does the sanction letter say? Whether it is prepayment charges or take-over charges?
In cash credit accounts, it is presumed that the customer will be utilize funds and for which banks are required to earmark their resources to meet the commitment. If the utilization is low, banks do charge commitment charges as the earmarked funds could not be deployed elsewhere (though the presumption is hypothetical). Like-wise if the customer makes prepayment of cash credit account, the available funds could not be deployed immediately by the banks. Hence they charge prepayment charges. Take-over charges will little higher as it has to take care of above aspects as well as to prevent frequent shifting of the customer on account lower rates of interest offered by others.
Whether they are legal or illegal is a different matter. At present you are a problem as you are not position to utilize the limit either of the banks. What is the limit and what is the amount of this additional charges? If it is paltry you have reconcile yourself and pay off the amount, as you need the documents urgently. Look into the sanction letter carefully and if the action of the bank is as per the sanctioned terms, you can not get immediate relief though the action can be challenged. If it is not strictly in terms of sanction letter, bring the fact to the Manager and ask him to release the documents.
Alternatively tactfully give a representation addressed to the Next higher authority of the bank and ask the manager to forward the same. Offer him that you will deposit amount in a "no lien" account and the receipt will be a security for payment in case the decision comes negative. Ask him to release document so that you can conduct the business.
In the meanwhile you can take all the steps including complaining to Ombudsman or taking the matter to consumer forum etc., Only your deposit will be locked with the bank till the matter is settled and you will interest on the deposit, thus there will not be financial loss to you, and you can utilize the new limits with the new bank by depositing the property documents.
