MSMEs move RBI over loan foreclosure fees | Mint
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Business News/ Industry / Banking/  MSMEs move RBI over loan foreclosure fees

MSMEs move RBI over loan foreclosure fees

Banking ombudsman has not helped affected firms, says industry body
  • Borrowers typically switch banks for better terms and facilities elsewhere
  • Close to 100 small enterprises have complained about the charges which are used to extract higher interest rates, the MSME industry body told RBI (Photo: HT)Premium
    Close to 100 small enterprises have complained about the charges which are used to extract higher interest rates, the MSME industry body told RBI (Photo: HT)

    NEW DELHI : An association of small enterprises has approached Reserve Bank of India (RBI) seeking relief on the high foreclosure and non-compliance charges levied by banks, at a time when wholesale price inflation is exerting pressure on working capital.

    In a letter to the central bank, the Federation of Indian Micro and Small and Medium Enterprises (FISME) alleged that HDFC Bank, Axis Bank and Kotak Mahindra Bank have been using foreclosure and non-compliance charges to punish MSME borrowers looking for better terms and credit facilities elsewhere.

    “MSMEs are being subjected to very harsh and illegal foreclosure and non-compliance charges when they leave a bank and the banking ombudsman has failed to deliver justice to affected MSMEs. Close to 100 small enterprises have complained about the charges which have become a tool to extract higher interest rates. In one case, foreclosure charges of 14 lakh and non-compliance charges of 54 lakh were asked for a credit arrangement of 3.5 crore," Anil Bhardwaj, secretary-general, FISME, said.

    Maneet Pal Singh, partner, I.P. Pasricha and Co., said foreclosure charges are levied when a customer seeks to close a loan before the tenure ends, either because of excessive interest rate or negligence in services. “Banks levy a penalty of 2-4% in the name of foreclosure charges to prevent a customer from leaving," Singh said.

    Axis Bank sought 80 lakh as foreclosure and non-compliance charges when Jaipur-based small enterprise Neelam Aqua and Speciality Chemicals Pvt. Ltd shifted its account to another bank, FISME said.

    “The firm asked the bank to enhance the limit for funding a new project to meet export commitments for which land was allotted by the state. Even after repeated requests when the bank did not budge, the MSME shifted its account to another," FISME added.

    In another instance, Kotak Mahindra Bank levied 15.34 lakh as non-disclosure charges from Super Metals based in Jodhpur. According to FISME, the bank alleged that financial ratios were not maintained as per stipulation; hence, a penalty would be charged with retrospective effect.

    MSMEs alleged the banking ombudsman has disposed of complaints as ‘closed’ and observed that “there is no deficiency in service" or “the complaint has been settled by the bank". FISME said MSMEs have also been barred from appealing against the decisions.

    Queries to the Union finance ministry, RBI, Axis Bank and Kotak Mahindra Bank did not elicit any response till press time.

    HDFC Bank maintained that facilities were booked after getting sanction letters and documentation duly accepted by the customer containing the terms and conditions including commercials. “A customer with grievances can approach supervisors of their relationship managers or register an email complaint," a bank spokesperson said.

    In developed economies, banking ombudsman is much more forthright in protecting affected customers of financial institutions, FISME said. The Financial Ombudsman Service (UK) upheld 38% of the banking, credit and mortgage related complaints of consumers in 2021, while delivering awards in each case, it added.

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    Published: 11 Jul 2022, 11:33 PM IST
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