RBI circular on bank charges

There seems to be some relief for the common man who has availed of loan from the banks / financial institutions and was being charged with "fees", "charges", etc. over and above what was made known to him before disbursement of loan. These "hidden costs" aggregated to a big amount which imposed additional burden on the poor person availing of loan.

RBI has rightly stated that levying such charges subsequent to the borrowing of loan, without disclosing the same to the borrower initially, is an unfair practice.

The relevant notification is set out below:

RBI / 2008-09 / 296
DBOD.No.Leg.BC. 86 /09.07.005/2008-09

November 25, 2008

All Scheduled Commercial Banks / All India Financial Institutions
(Excluding RRBs)

Dear Sir,

Guidelines on Fair Practices Code for Lenders- Disclosing
all information relating to processing fees / charges


Please refer to our Circular DBOD.No.Leg.BC.65 /09.07.005/2006-07 dated March 6, 2007 wherein banks / FIs were advised that loan application forms in respect of all categories of loans irrespective of the amount of loan sought by the borrower should be comprehensive. It should include information about the fees/charges, if any, payable for processing, the amount of such fees refundable in the case of non acceptance of application, pre-payment options and any other matter which affects the interest of the borrower, so that a meaningful comparison with that of other banks can be made and informed decision can be taken by the borrower.

2. It has come to our notice that some banks levy in addition to a processing fee, certain charges which are not initially disclosed to the borrower. It may be mentioned that levying such charges subsequently without disclosing the same to the borrower is an unfair practice.

3. Banks / FIs are therefore advised to ensure that all information relating to charges /fees for processing are invariably disclosed in the loan application forms. Further, the banks must inform ‘all-in-cost’ to the customer to enable him to compare the rates charged with other sources of finance.

Yours faithfully
(Prashant Saran)
Chief General Manager-in-Charge

Reverse Mortgage Scheme, 2008

Reverse Mortgage Scheme, 2008

Ministry : Ministry of Finance
Department / Board : CBDT
Notification No : 93/2008
Date : 30.09.2008

In exercise of the powers conferred by clause (xvi) of section 47 of the Income -tax Act, 1961 (43 of 1961), the Central Government hereby makes the following scheme, namely:

1. Short title, commencement and application -

(1) This scheme may be called the Reverse Mortgage Scheme, 2008.
(2) It shall be deemed to have come into force from the 15th day of April, 2008.
(3) Save as otherwise provided in the Scheme, it shall be applicable to all eligible persons.

2. Definitions - In this Scheme, unless the context otherwise requires,-

(a) "Act" means the Income -tax Act, 1961 (43 of 1961);

(b) "approved lending institution" means -
(i) National Housing Bank established under section 3 of the National Housing Bank Act, 1987 (53 of 1987);
(ii) a scheduled bank included in the second schedule to the Reserve Bank of India Act, 1934; or
(iii) a housing finance company registered with the National Housing Bank;

(c) "Board" means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963);

(d) "Capital asset" means a residential house property which is located in India;

(e) "eligible person" means
(i) any person, being an individual, who is of, or above, the age of sixty years; or
(ii) any married couple, if either of the husband or wife is of, or above, the age of sixty years;

(f) "Reverse Mortgage" means mortgage of a capital asset by an eligible person against a loan obtained by him from an approved lending institution;

(g) "reverse mortgagor" means the eligible person who has mortgaged the capital asset for the purpose of obtaining loan;

(h) "reverse mortgage transaction" means a transaction in which the loan may be disbursed to the reverse mortgagor but does not include transaction of sale, or disposal, of the property for settlement of the loan;

(i) All other words and expressions used herein, but not defined and defined in the Act, shall have the meanings respectively assigned to them in the Act.

3. Application and processing for reverse mortgage transaction -

(1) Any eligible person may enter into a reverse mortgage transaction by applying in writing to the approved lending institution, if the capital asset, being mortgaged, is-
(i) owned by him; and
(ii) free from any encumbrances.

(2) The application under sub-rule, (1) shall be processed by the approved lending institution and for this purpose the institution may charge nominal amount as processing fees.

4. Sanction of reverse mortgage loan -

(1) The approved lending institution, before taking mortgage of capital asset and before disbursing any loan under reverse mortgage, shall-

(a) enter into a loan agreement in writing with the reverse mortgagor; and

(b) obtain and maintain the following particulars from the reverse mortgagor, namely:-
(i) Name and address of the owner of the capital asset;
(ii) Permanent Account Number of the owner of the capital asset;
(iii) Total area, including built up or covered area, of the capital asset;
(iv) Cost of acquisition and the year of acquisition of the capital asset;
(v) Cost of improvement and the year of improvement of the capital asset;
(vi) Name, address and Permanent Account Number of all the legal heirs and estate of the owner of the capital asset;
(vii) A copy of the registered will of the owner of the capital asset including any changes made therein during the currency of the term of the loan.

5. Disbursement of loan -

(1) The approved lending institution may disburse the loan to the
reverse mortgagor by any one or more of the following modes, namely:-
(i) periodic payments to be decided mutually between the approved lending institution and the reverse mortgagor;
(ii) lump-sum payment in one or more trenches, to the extent that the aggregate of the amount disbursed as lump sum payments does not exceed fifty per cent. of the total loan amount sanctioned.
6. Period of reverse mortgage loan -

The loan under reverse mortgage shall not be granted for a period exceeding twenty years from the date of signing the agreement by the reverse mortgagor and the approved lending institution.

7. Repayment of loan -

The reverse mortgagor, or his legal heirs or estate, shall be liable for repayment of the principal amount of loan along with the interest to the approved lending institution at the time of foreclosure of the loan agreement.

F.No.142/06/2008-TPL

Sd/-
(Kamlesh C. Varshney)
Director (TPL)