HC ASKS BANKS NOT TO EXCEED CONTRACTUAL RATE

The Telangana High Court stressed that banks cannot demand more than the contractual rate of interest from housing loan customers. It said the housing loan is always pitched at a much lower rate of interest compared to commercial loans.

A division bench comprising Justice V. Ramasubramanian and Justice P. Keshava Rao was dealing with a petition challenging the award of Debt Recovery Tribunal, which extended the rate of interest for a housing loan to 18 per cent per annum against the contractual rate of interest of 11.5 per cent.

The bench said the DRT had no power to extend the rate of interest for housing loans on applications for recovery of debts due to the banks and financial institutions. It said the DRT went beyond the terms of the contract by enhancing the interest rate.

The court modified the orders of DRT by stating that financial institutions shall demand only the contractual interest rate, instead of 18 per cent declared by DRT.

While dealing the plea, the court considered the contentions of the petitioners that the banks and financial institutions charge interest on housing finance in accordance with the directives on “Interest Rates on Advances” issued by Reserve Bank of India.

The Housing and Urban Development Corporation Limited in the process of its debt recovery from Hyderabad residents Sri Ranga Prasad and others approached the DRT secured an order to recover the dues by enhancing the rate of interest.

Aggrieved by the enhancement of interest rate Mr Prasad and others had approached the High Court.