Do borrowers have any rights? | Business Standard Column

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Can the bank take shelter under the omnibus problems caused by the Covid-19 crisis to indiscriminately cut down on the sanctioned credit limits

“A banker is a fellow who lends you his umbrella when the sun is shining but wants it back the minute it begins to rain,” -Mark Twain

And it’s true even today. Here is a personal experience to corroborate this. I have a credit card with a credit limit of Rs 5 lakh. I use it only for emergencies. My credit card issuer had provided a facility whereby I could voluntarily lower the limit online to reduce the impact of any misuse or fraud. I could reset it back up any time. I used this facility to keep the self-set limit at Rs 1 lakh. Recently, when a close family member fell ill, I went to the bank’s website to increase the limit back to Rs 5 lakh. To my horror, I discovered that the option itself has been removed from the bank’s online login. Then, I remembered a newspaper article that the same bank had reduced credit card limits of its cardholders. I had neither received any notice for reducing my credit card limit or for the fact that the limit setting option was being removed from the website. Anyway, I made other arrangements for the required funds for the emergency. I shudder to think of the fate of others who are not so fortunate to be able make alternate arrangements quickly.

What is more interesting is that I have a 15-year history with the bank, including loans that I had fully paid off. Currently, I have no loans, my credit score is really good and I had an excellent average balance with the bank. Yet, it chose to reduce the limit on my credit card without any reason and without notice. Should a bank be allowed to withdraw its already sanctioned limit without any notice and without any specific cause? Though the Reserve Bank of India (RBI) guidelines specify that banks should give notice for any change in the “terms and conditions” of a loan (or credit card), the question is whether the sanctioned limit comes under “terms or conditions” is a matter of interpretation.

I recognise the need of the bank to act fast when its loan assets are threatened by default. But can the bank do so without notice and especially when there has been no specific event that threatened the credit of the specific individual. Can the bank take shelter under the omnibus problems caused by the Covid-19 crisis to indiscriminately cut down on the sanctioned credit limits, which the clients would be depending on to combat the crisis in the first place? Are borrowers rights are not to be protected?

This raises many questions regarding:

  • A legally enforceable borrowers’ charter of rights.
  • Transparency to require lenders to share their internal annual credit rating (including interim ratings) with the borrower.
  • Transparent portability process just like in mobile telephony

The government and RBI seem to believe that lending by the banks will kick start the economy out of the deep slumber caused by the Covid-19 crisis. The behaviour of hyper risk-averse bankers with excellent retail borrowers is unlikely to generate any confidence in the borrower’s minds. The regulator needs to act, and the time is now.

The writer is Sebi-registered investment advisor

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