The Reserve Bank of India (RBI) committee on customer service has recommended old and new home loan customers be treated at par by offering the same rate of interest by clubbing them under the same risk profile. It has called for measures to stop practices of discriminating against identical customers on the basis of interest rate offers.

The committee, headed by the former Sebi chief M Damodaran, says that the foreclosure charges (pen­alty for closing a loan before its term) are seen as a restrictive practice deterring the borrowers from switching over to cheaper available source. “Across the country, home loan customers who have floating interest rate loans have expressed unhappiness over the discrimination in interest rates offered to the new customers,” the committee noted.

The committee is also of the view that the regulatory lacunae on issues such as teaser rate loans, festival loans and several such promotion schemes should be bridged. Another vital recommendation is over creation of a toll-free common bank call number.

NS Srinath, executive director, Bank of Baroda, says, “All our retail loans are linked to the base rate so the differential treatment does not arise. This it applicable to banks which have a different reference rate for retail loans or have teaser loans, etc. Hiking the deposit cover is a positive move as the banks were offering a huge premium but the payout was meagre.”

Other recommendations of the committee include providing plain va­nilla savings account without prescription of minimum balance, setting up of third party know your customer (KYC) data bank, prescription of service charges for basic services, providing small remittances at reasonable price, compensation for delayed return/loss of title deeds in the custody of banks, and zero liability against loss in ATM and online transactions.

It has also recommended prepaid instruments up to Rs 50,000 for frequent travelers and differential merchant discount/fee for debit cards.

The committee has also recommended a hike in insurance on bank deposits from the present Rs 1,00,000 per depositor to Rs 5,00,000 to encourage individuals to keep all their deposits with the bank. It may also explore a possibility of providing full insurance cover for bank deposits by making necessary amendments in the relevant acts.

In case of sick banks where the accounts are frozen, the Reserve Bank of India committee feels that a way must be found to enable customers to avail a part of their insured deposit till the final fate of a sick bank is decided.

A senior Canara Bank official said that the deposit insurance premium is paid by all banks but the actual payout is happening only in the case of co-operative banks. “So their premiums should be enhanced. Banks should ideally seek a solution to the heartburn that is caused to old customers who have a higher rate of interest than the new customers. Banks are using it as customer acquisition strategy. Reserve Bank of India has also been driving home the point and the banks may forgo this practice. But it also depends on the cost of funds of the bank. Certainly, it is unfair to customers.”