December 14, 2009

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 loans, 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 cards, 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.