The Allahabad High Court has observed that the Reserve Bank of India has been a “mute spectator” while banks are imposing arbitrarily high interest rates on customers despite guidelines issued by the banking regulator.
The observation was made by a bench comprising Justices Mahesh Chandra Tripathi and Prashant Kumar while disposing of a petition filed by Manmeet Singh who had availed of a loan of Rs 9 lakh from a private bank.
“Surprisingly, RBI had been issuing guidelines but has done nothing for the implementation of the same. They have just been a mute spectator allowing the banks to charge arbitrarily a very high rate of interest,” the court observed.
On the RBI’s responsibility as the banking regulator in the country, the court said, “Even if the benefit of doubt is given to the banks that they are free to charge the interest rate but it is duty of the RBI to see that the customers are not inconvenienced by huge rate of interest charged by the banks.”
The petitioner had obtained Rs 9 lakh loan from the Standard Chartered Bank with a variable interest rate of 12.5 per cent per annum. After repaying off the entire amount, the petitioner requested a ‘no dues certificate’ and property document from the bank, which were promptly provided.
When Singh checked his loan account, he was shocked to find that the bank had debited a total of Rs 27 lakh while it should have debited, according to the petitioner, about Rs 17 lakh as per the interest rate of 12.5 per cent.
The petitioner sought resolution from the banking ombudsman. However, his complaint was closed without providing him a copy of the bank’s reply.
The petitioner’s plea was that the banking ombudsman had closed the complaint without giving any opportunity to him to present his case.
Advocate appearing for the petitioner argued that interest for the loan was charged at the rate of 16-18 per cent, as opposed to the 12.5 per cent the petitioner had agreed to pay.
On the other hand, counsel for the Standard Chartered Bank argued that the agreement explicitly outlined a variable interest rate subject to revision every three months.
Advocate Sumit Kakkar appearing for the RBI argued that it had regulated the interest rates charged by banks, and that the rate of interest on loans depended on various external factors.
The court noted that the petitioner was consistently charged a higher interest rate throughout the loan tenure without any apparent justification.
“The bank is trying to mask their arbitrary and illegal action by stating that the petitioner had agreed in the loan agreement to pay a floating rate of interest and RBI has allowed the bank to charge interest based on the market conditions,” the order said.
The court further observed, “It determined that the bank’s imposition of a higher interest rate violated the RBI master circular dated July 2, 2007.”
The court also said that the petitioner was not informed about it and consequently did not accept the variable interest rate charged by the bank.
“The respondent no.5 (bank) failed to provide and adopt a transparent method of charging of the interest. It has been pointed out that the respondent-bank did resort to an arbitrary methodology. As per the guidelines given by the RBI, any change in that rate cannot be applied to the customers without serving notice to him and without his consent,” the order stated.
The court determined that the banking ombudsman failed significantly in adjudicating the petitioner’s case. The petitioner was not afforded any chance to respond to the objections raised by the Standard Chartered Bank, it said, and sent the matter back to the banking ombudsman to decide afresh.
