ICICI Bank, HDFC get notice on pre-payment penalty

Competition watchdog CCI has asked about two dozen banks and housing finance companies, including HDFC, ICICI Bank, and LICHF, to explain their imposing penalty on borrowers for pre-payment of home loans.

The Competition Commission of India, according to official sources, has sent notices to major home loan players after examining a report of Director General (Investigations) which found evidences against banks for misusing their dominant position and entering into anti-competitive agreements.

"We have sent showcause notices to 20 banks including ICICI Bank, HDFC, LIC Housing Finance, Deutsche Postbank and the Indian Banks' Association. We have also sensitised the Reserve Bank on how the practice of charging pre-payment penalty is hurting consumers," a senior CCI official told PTI.

The Commission was scrutinising a complaint filed by a customer against the practice by these banks. However, spokespersons of ICICI Bank, HDFC and LIC Housing Finance could not be reached for comments.

The move gives hopes to thousands of borrowers of foreclosing their housing loans without paying penalty. If the penalty is lifted, it may also lead to borrowers' shifting their credit to those lenders offering lower interest.

The CCI, official said, could also penalise the lenders for adopting such practices to discourage customers from pre-paying home loans or the the practice could be banned across the industry.

Market leader HDFC, for example, currently levies pre-payment charges ranging between zero and two per cent of the amount pre-paid by a borrower.