When banks are penalised

Pushpa Girimaji
Pushpa Girimaji

IN recent months, several banks have faced the wrath of the courts for their irresponsible behaviour. In March this year, for example, ICICI Home Finance was asked to pay damages to the tune of Rs 30,000 to a consumer, for its failure to disburse the sanctioned loan. Now, HSBC bank has been asked to pay a compensation of Rs 1 lakh for failing to meet its commitment, thereby causing undue harassment and financial loss to the customer. Together, these two orders of the court should force banks to behave more responsibly.

Both orders pertain to home loans, and in both cases, the sanctioned loans were not disbursed. But the second order, delivered on May 25, is far more significant because it also exposes the way banks exploit people through unethical practices. It is no wonder that the compensation amount in this case is also higher. The clients here, an NRI couple, applied for a flat costing Rs 31 lakh, and obtained a loan of Rs 28 lakh at 7.75 per cent interest from ICICI Home Finance. However, to the couple’s dismay, the builder suddenly increased the price of the flat by about Rs 8 lakh. At this time in 2006, when they were visiting India, a manger of HSBC Bank contacted the couple and offered a loan of Rs 40 lakh, to help them pay the additional demand from the builder, and also close the loan account with ICICI.

Even though the interest on the loan was higher, the couple agreed because it meant that they would have to deal with just one bank for repayment. However, what followed was totally unexpected and highly distressing. HSBC took over the loan from ICICI, but never paid the additional amount for which they had decided to switch banks. At every stage, when the demand for payment came from the builder, the bank promised to release the money, but never did. As the interest on the unpaid amount mounted and the builder threatened to cancel their allotment, the couple somehow managed to pay him and retain the flat.

However, they decided to take the bank to court for misleading them and causing them considerable mental stress and financial loss. By moving their loan to HSBC, they had to pay a foreclosure penalty of Rs 76,790 to ICICI. Then, because of the bank’s failure to release the additional promised loan amount, they had to pay an interest of Rs 98,350 to the builder. The Chandigarh state consumer disputes redressal commission directed the bank to refund these two amounts to the duo and also pay a compensation of Rs 1 lakh to them.

While upholding this order and directing the bank to pay costs of Rs 5,000 to the consumers, the apex court commented that the bank, perhaps as an aggressive marketing strategy, wanted to take over the loan already given to the complaints by ICICI Home Finance and to do that, lured the complainants with a promise to sanction their entire loan requirement of Rs 40 lakh. However, after taking over their liability to the tune of Rs 27,15,895 from ICICI, and obtaining the requisite documents and security, the bank failed to disburse the remaining amount. This was a clear case of deficiency, the commission commented (HSBC Limited vs Sridhar Gujala and Ors, RP No 1383 of 2009, decided on May 25, 2010).

In the earlier case, decided in March this year, the court had chastised ICICI Home Finance for not releasing the sanctioned loan of Rs 70,000. Observing that the bank’s action had caused undue harassment to the client and he needed to be compensated for it, the national consumer disputes redressal commission in this case had directed the bank to pay Rs 30,000 as compensation, besides costs of litigation of Rs 3,000 (Jagmohan Lal Mohan vs ICICI Home Finance Company, RP no 753 of 2006,).

If one looks at the classification of complaints received by the banking Ombudsman, grievances pertaining to the banks’ failure to meet their commitments or promises constitute the second largest group (credit card-related complaints are the largest). There were 11,824 such complaints during the year 2008-2009. Complaints relating to loans and advances and home loans constitute the third largest chunk (8174 complaints). It is only imposition of stiff penalties that will reduce such complaints.