The move by the Indian Banks’ Association (IBA) — at the prodding of the Reserve Bank of India (RBI)? — to compel banks to offer a uniform rate to old and new home loan borrowers is wanton interference in what is essentially a commercial decision of individual banks. All that the IBA and the RBI can, and must, insist on is transparency: all terms and conditions of the loans, and not just home loan, should be declared upfront. It is for the borrower to read the fine print and decide whether she wishes to avail of the loan.
Caveat emptor is the rule whether in the matter of loans or credit card, stock market investment or buying an insurance or pension product. If a borrower does not understand a product, she should not get into it. Period. Yes, if the seller has not been transparent and slaps additional charges, whether for prepayment or resetting interest rates, the borrower has a genuine grouse and can demand recompense.
But if for whatever reason the bank in a bid to attract new customers decides to make a special offer and limits this offer to new customers, the older ones have no case. If Maruti, for instance, offers a festival discount for its cars, can those who bought cars earlier, maybe even a day earlier, protest? Of course not! The same goes for discounted airline tickets. So why expect banks to act differently?
The problem is that the banking industry in India, at least the public sector banking industry, has been so hobbled with all kinds of restrictions, driven either by vested interests or political compulsions, that the public at large thinks it can interfere in bank pricing decisions in a way that would be unimaginable in any other sector. Ultimately, competition is the only way of ensuring customers get the best deal.
As for the RBI, it should limit itself to ensuring banks’ antics do not endanger the health of the sector, apart, of course, from transparency. Beyond this, it is for borrowers to read the fine print before they take a loan, not afterwards. In the brave new world of market-led growth, there is no substitute to financial literacy. The sooner the public learns this, the better. Beyond a point, no regulator can protect a man from the consequences of his own folly. Nor should it try!
