Alarmed over rising consumer complaints on home loans to credit cards, the banking regulator has asked banks to become more “fair and transparent” while signing their agreements with the consumers.

In an interview with The Indian Express, the Reserve Bank of India (RBI) governor Y.V. Reddy said while giving a home loan, the banks should not tie their loans with their own prime lending rates (PLR) which often results in pro-bank and against consumer interest.

“We are asking banks not to impose their own PLR rate while giving a loan to a customer. Banks can’t say, ‘my PLR is the benchmark’. It is better to get an independent and outside PLR while giving a home loan,” Dr Reddy said.

The governor advised households to get credit counseling before signing any loan agreement. “We would like banks to give credit counseling to customer before giving a loan. In fact, it would be better if any non-govermental organisation can give independent credit counseling to small borrowers,” he said.

Consumers often complain that they did not receive benefits of falling interest rates as banks tied their floating rate loans with its PLR and even when rates fell, the banks kept the PLR unchanged. But when interest rates went up, the banks increased the benchmark rate, thus making customers pay a higher rate and increase the number of equated monthly installments.

The RBI governor said they are in the process of coming out with proper directions to the banks in this regard. “We have asked banks to become more fair and transparent in the loan agreements with the common man,” said Reddy.

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