BCSBI ::
Lending::
Each bank has its own Loan policy, approved by its Board, based on the guidelines
issued by the Reserve Bank of India. Banks are expected to base their lending
decisions on a careful and prudent assessment of the financial position and repaying
capacity of the applicant, besides other important criteria.
What information is a bank required to give when one approaches them for a
loan?
Banks, along with the loan application form are required to provide full
information about the interest rates applicable, whether floating or fixed as
also fees and charges payable for processing, penal rate of interest for delayed
payments, conversion charges for switching loans from fixed to floating rates
and vice-versa, existence of any interest reset clause, time by which a decision
on the application will be conveyed to the applicant and any other matters
which will affect your interest as a borrower.
What is floating rate of interest?
A floating interest rate is a variable interest rate which can change over the
duration of the loan / credit facility. The applicable interest rate on the loan
moves up and down with the market rates or along an index.
What would one require to know if one opts for a floating interest rate on
loans?
If one has opted for a loan at floating rate of interest he / she needs to knowo
The Base / Reference rate of the bank to which the floating rate of
interest is linked;
o Whether the spread / margin can change during the tenure of the
loan;
o Whether the agreement specifies a 'minimum interest rate' clause.
(This would mean that even if the interest rate moves down you cannot
benefit from it below the minimum rate specified by the bank);
o Whether the bank has pre-determined reset dates like January 1,
April 1, July 1, October 1 etc.
What is fixed interest rate?
An interest rate on a loan / credit facility that remains fixed either for the entire
term of the loan or for part of this term is referred to as a fixed interest rate.
What would one require to know if one opts for a fixed interest rate on loans?
If one is opting for a fixed interest rate loan, he / she must know -
o For how many years the same rate of interest would apply.
o Whether there is an 'interest reset' clause in the loan agreement
and if so from when it will be effective.
What is interest rate reset clause?
An 'interest rate re-set' clause allows a bank to review and reset rates at the end
of a specified period of time based on interest rates prevailing at that time..
What is MITC?
MITC is the acronym for 'Most Important Terms and Conditions'. It is a
document that indicates the important terms and conditions of a product or
service a customer needs to know before deciding to opt for the product /
service. This is not to be confused with the promotional literature / brochures /
pamphlets or with the sanction letter or Agreement. The detailed terms and
conditions are made known usually at the time of sanction / availing the product
/ service.
Will the bank inform the borrower when there is a change in the interest rate on
the loan?
Yes. The bank is required to inform the borrower of changes in interest rates on
their loan products and changes in the base / reference rate to which the floating
rate of interest is linked.
Can a borrower increase the tenure of a loan when the interest rate increases?
The bank will inform the borrower whether he / she can have the option to let
equated monthly installments stay constant and increase tenure or vice-versa
when the interest rate changes. This should form a part of the terms and
conditions of the loan sanctioned.
Can the borrower switch from a loan availed on fixed interest rates to floating
interest rates?
Banks may permit borrowers to switch from fixed rates of interest to floating
rates of interest or vice-versa. This may involve the payment of a fee. This
information should be provided by the bank to customers as part of the terms
and conditions of the loan sanctioned.
Will a bank acknowledge the receipt of a loan application?
Yes. Banks are required to give an acknowledgement for having received the
loan application.
How long will a bank take to process a loan application?
The time taken to process loan applications for different purposes / amounts may
differ from bank to bank. The bank is required to, indicate the time required to
process a loan application, at the time of receipt of the application itself.
How will I know if the bank has sanctioned my loan?
Sanction or otherwise of loan applications is required to be intimated by the
bank to the applicant in writing.
Will the bank give the borrower copies of the documents / loan agreement he
has executed while availing the loan?
Banks are required to give the borrower authenticated copies of all the loan
documents executed by him / her along with a copy each of all enclosures
quoted in the loan document.
Will the bank acknowledge receipt of documents / securities. / title deeds taken
as security for the loan availed?
The bank should give written receipt for all documents / title deeds etc. taken as
security/collateral for any loan as well as for dated/undated cheques received
from you. This is in addition to the requirement to issue sanction letter and copy
of Loan Agreement.
How will one know the status of one's loan account?
Banks are required to send an annual statement of demand / term loan availed by
the borrower. These statements show the payments that have been made on the
account and the interest accrued, along with the balance still to be paid / amount
outstanding.
Can one prepay the loan availed? Do banks charge for pre-payment of loans?
Yes, most banks allow you to repay the loan ahead of schedule by making
lumpsum payments. However, banks may charge a pre-payment penalty. Prepayment
penalty may vary according to the sources of funds used to pre-pay the
loan - if you avail of a loan from another bank to pre-pay the loan, charges are
usually higher than when you pay from your own sources.
The details of pre-payment and associated charges form part of the sanction
letter / loan agreement entered into with the concerned bank.
Incidentally, banks have been instructed by the Reserve Bank of India not to
levy pre-payment charges on home loans taken on floating interest rates.
What is an EMI?
EMI is the acronym for Equated Monthly Installments. EMI is a fixed amount,
comprising of both principal and interest, paid by a borrower to a lender at a
specified date each calendar month.
Can the bank ask for additional security while sanctioning a loan?
Banks may take some additional securities which are called collateral securities.
Collateral could be in the form of guarantee from one or two persons,
assignment of life insurance policies, lien over shares, and units or other
securities or mortgage of immovable property. These additional securities are
taken so that in case a loan is not paid back, recourse may be taken to such
securities instead of depending upon the primary security alone.
Does one have to insure the vehicle / property etc. purchased with the loan
availed?
Yes. One will have to insure the property etc. as required by the bank during the
tenure of the loan. However, banks cannot insist on your obtaining insurance
cover from any particular provider.
When will the bank return the securities / title deeds deposited as security for
the loan availed?
Banks should return all the securities / documents/title deeds to mortgaged
property within 15 days of the repayment of all dues agreed to or contracted. If
any right to set off is to be exercised for any other claim, the bank will give due
notice with full particulars about the other claims and retain the
securities/documents/title to mortgaged property till the relevant claim is
settled/paid.
How long does a bank take to return the securities / title deeds deposited as
security for the loan availed?
The bank is required to return the securities / title deeds etc. lodged with them as
security for the loan availed within 15 days of repayment of all dues agreed to or
contracted. The bank is required to pay compensation if there is a delay in
returning the documents beyond 15 days.
What happens if the bank loses the documents etc. lodged as security with
them?
In the event of the bank losing the securities /documents, the bank should
compensate the borrower for the loss. The bank is also required to issue a
certificate indicating the securities / documents lost and extend all assistance to
you for obtaining duplicate documents etc.
How long will the bank take to transfer a borrowal account to another bank?
When a request for transfer of a borrowal account is received, the bank is
required to give its concurrence or otherwise within 21 days of receipt of such
request.
What information is the bank required to give the guarantor of a loan?
The bank will tell the guarantor
o His / Her liability as a guarantor;
o Whether the liabilities are limited to a specific amount or they are
unlimited;
o Time and circumstances under which he / she may be called upon
to discharge the liabilit
The bank is also required to keep the guarantor informed of any material adverse
change in the financial position of the borrower.
Lending::
Each bank has its own Loan policy, approved by its Board, based on the guidelines
issued by the Reserve Bank of India. Banks are expected to base their lending
decisions on a careful and prudent assessment of the financial position and repaying
capacity of the applicant, besides other important criteria.
What information is a bank required to give when one approaches them for a
loan?
Banks, along with the loan application form are required to provide full
information about the interest rates applicable, whether floating or fixed as
also fees and charges payable for processing, penal rate of interest for delayed
payments, conversion charges for switching loans from fixed to floating rates
and vice-versa, existence of any interest reset clause, time by which a decision
on the application will be conveyed to the applicant and any other matters
which will affect your interest as a borrower.
What is floating rate of interest?
A floating interest rate is a variable interest rate which can change over the
duration of the loan / credit facility. The applicable interest rate on the loan
moves up and down with the market rates or along an index.
What would one require to know if one opts for a floating interest rate on
loans?
If one has opted for a loan at floating rate of interest he / she needs to knowo
The Base / Reference rate of the bank to which the floating rate of
interest is linked;
o Whether the spread / margin can change during the tenure of the
loan;
o Whether the agreement specifies a 'minimum interest rate' clause.
(This would mean that even if the interest rate moves down you cannot
benefit from it below the minimum rate specified by the bank);
o Whether the bank has pre-determined reset dates like January 1,
April 1, July 1, October 1 etc.
What is fixed interest rate?
An interest rate on a loan / credit facility that remains fixed either for the entire
term of the loan or for part of this term is referred to as a fixed interest rate.
What would one require to know if one opts for a fixed interest rate on loans?
If one is opting for a fixed interest rate loan, he / she must know -
o For how many years the same rate of interest would apply.
o Whether there is an 'interest reset' clause in the loan agreement
and if so from when it will be effective.
What is interest rate reset clause?
An 'interest rate re-set' clause allows a bank to review and reset rates at the end
of a specified period of time based on interest rates prevailing at that time..
What is MITC?
MITC is the acronym for 'Most Important Terms and Conditions'. It is a
document that indicates the important terms and conditions of a product or
service a customer needs to know before deciding to opt for the product /
service. This is not to be confused with the promotional literature / brochures /
pamphlets or with the sanction letter or Agreement. The detailed terms and
conditions are made known usually at the time of sanction / availing the product
/ service.
Will the bank inform the borrower when there is a change in the interest rate on
the loan?
Yes. The bank is required to inform the borrower of changes in interest rates on
their loan products and changes in the base / reference rate to which the floating
rate of interest is linked.
Can a borrower increase the tenure of a loan when the interest rate increases?
The bank will inform the borrower whether he / she can have the option to let
equated monthly installments stay constant and increase tenure or vice-versa
when the interest rate changes. This should form a part of the terms and
conditions of the loan sanctioned.
Can the borrower switch from a loan availed on fixed interest rates to floating
interest rates?
Banks may permit borrowers to switch from fixed rates of interest to floating
rates of interest or vice-versa. This may involve the payment of a fee. This
information should be provided by the bank to customers as part of the terms
and conditions of the loan sanctioned.
Will a bank acknowledge the receipt of a loan application?
Yes. Banks are required to give an acknowledgement for having received the
loan application.
How long will a bank take to process a loan application?
The time taken to process loan applications for different purposes / amounts may
differ from bank to bank. The bank is required to, indicate the time required to
process a loan application, at the time of receipt of the application itself.
How will I know if the bank has sanctioned my loan?
Sanction or otherwise of loan applications is required to be intimated by the
bank to the applicant in writing.
Will the bank give the borrower copies of the documents / loan agreement he
has executed while availing the loan?
Banks are required to give the borrower authenticated copies of all the loan
documents executed by him / her along with a copy each of all enclosures
quoted in the loan document.
Will the bank acknowledge receipt of documents / securities. / title deeds taken
as security for the loan availed?
The bank should give written receipt for all documents / title deeds etc. taken as
security/collateral for any loan as well as for dated/undated cheques received
from you. This is in addition to the requirement to issue sanction letter and copy
of Loan Agreement.
How will one know the status of one's loan account?
Banks are required to send an annual statement of demand / term loan availed by
the borrower. These statements show the payments that have been made on the
account and the interest accrued, along with the balance still to be paid / amount
outstanding.
Can one prepay the loan availed? Do banks charge for pre-payment of loans?
Yes, most banks allow you to repay the loan ahead of schedule by making
lumpsum payments. However, banks may charge a pre-payment penalty. Prepayment
penalty may vary according to the sources of funds used to pre-pay the
loan - if you avail of a loan from another bank to pre-pay the loan, charges are
usually higher than when you pay from your own sources.
The details of pre-payment and associated charges form part of the sanction
letter / loan agreement entered into with the concerned bank.
Incidentally, banks have been instructed by the Reserve Bank of India not to
levy pre-payment charges on home loans taken on floating interest rates.
What is an EMI?
EMI is the acronym for Equated Monthly Installments. EMI is a fixed amount,
comprising of both principal and interest, paid by a borrower to a lender at a
specified date each calendar month.
Can the bank ask for additional security while sanctioning a loan?
Banks may take some additional securities which are called collateral securities.
Collateral could be in the form of guarantee from one or two persons,
assignment of life insurance policies, lien over shares, and units or other
securities or mortgage of immovable property. These additional securities are
taken so that in case a loan is not paid back, recourse may be taken to such
securities instead of depending upon the primary security alone.
Does one have to insure the vehicle / property etc. purchased with the loan
availed?
Yes. One will have to insure the property etc. as required by the bank during the
tenure of the loan. However, banks cannot insist on your obtaining insurance
cover from any particular provider.
When will the bank return the securities / title deeds deposited as security for
the loan availed?
Banks should return all the securities / documents/title deeds to mortgaged
property within 15 days of the repayment of all dues agreed to or contracted. If
any right to set off is to be exercised for any other claim, the bank will give due
notice with full particulars about the other claims and retain the
securities/documents/title to mortgaged property till the relevant claim is
settled/paid.
How long does a bank take to return the securities / title deeds deposited as
security for the loan availed?
The bank is required to return the securities / title deeds etc. lodged with them as
security for the loan availed within 15 days of repayment of all dues agreed to or
contracted. The bank is required to pay compensation if there is a delay in
returning the documents beyond 15 days.
What happens if the bank loses the documents etc. lodged as security with
them?
In the event of the bank losing the securities /documents, the bank should
compensate the borrower for the loss. The bank is also required to issue a
certificate indicating the securities / documents lost and extend all assistance to
you for obtaining duplicate documents etc.
How long will the bank take to transfer a borrowal account to another bank?
When a request for transfer of a borrowal account is received, the bank is
required to give its concurrence or otherwise within 21 days of receipt of such
request.
What information is the bank required to give the guarantor of a loan?
The bank will tell the guarantor
o His / Her liability as a guarantor;
o Whether the liabilities are limited to a specific amount or they are
unlimited;
o Time and circumstances under which he / she may be called upon
to discharge the liabilit
The bank is also required to keep the guarantor informed of any material adverse
change in the financial position of the borrower.
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