Sunday, May 24, 2009

HDFC Home loan

The Chairman


Subject: Serious Concerns on the unreasonable high rate of interest charged by HDFC on the Home Loans customers.

Dear Sir

I am a member of a group of HDFC home loan customers who have joined together to share their experiences, views and have a platform to interact with yourself. I chose HDFC only on the strength of your Brand name and being a specialist for Home Loan products. My experience with HDFC has been extremely dissatisfying. I am deeply annoyed at the lack of transparency and lack of mutual relationship shown by you at this critical Juncture of financial Crisis.  I have noticed over a period of years that the charged interest rate is floating only upwards. I have noticed whenever the market conditions ask for a rate increase the effect is passed on to existing customers in a flash but when the rates fall the benefit goes only to new customers. Whereas most of the banks have reduced rates as per the directions of RBI HDFC has turned a blind eye towards the existing customers. I personally feel that your company’s behaviour is not only unfair, unethical but also totally monopolistic. If feel that I have taken a home loan from an old time money lender rather than a modern bank. I am mentioning a few examples of the same below.


  1. Floating loan move only upwards and rarely downwards - The whole idea of floating rate is that customer can tie himself to the interest rate changes over his term of the loan. If the bank is only going to float the rates upwards when the market rate goes up, but rarely downwards when the market rate goes down, the whole purpose of loan being floating is contradicted. HDFC will move the rate upwards the moment such move is initiated in the market but for the rates to fall it takes a very long time.


  1. PLR rarely revised lower, new customers given better spreads - HDFC is resorting to the practice of offering new home loan at lower interest rate compared to existing customer by giving a better spread over PLR. With this, the bank continues to charge above market interest rate to the existing customer and also attracts new customer. Clearly the reduction in cost of funding is not passed on to the existing customer in this case but in case the cost of funding goes up existing customers are the first to be effected by the same. This is unfair & unjust. The present difference is not because of credit worthiness of customers but because of a desire to get new customers & ignore old ones.


  1. Unethical Conversion Fee - HDFC is offering to move the rates lower by 0.75% for a floating loan if the customer pays 0.5 % of the outstanding amount. This is a grossly a fraudulent practice. HDFC Bank mutely moved the rate up when the market rates went up, when the market rate went down, they are asking conversion fee to float the rate down I feel this is nothing but blackmail.


  1. Increased pre-payment changes - The unilaterally decision to increase the Pre-Payment charges on home loan from 2% to 3% is another example of your monopolistic attitude. Rather than offering good services & rates to your customer to retain them you are resorting to such unethical practices because you know that people do not wish to stay with you because of these unethical practices pointed above.




I have been regular in paying my installment despite immense financial constraints that the global slowdown is putting on the economy.


In view of the prevailing factual situation, I have the following demands from you:


  1. Interest rates for new & old customers need to be same - As already mentioned above the present practice is totally unethical & should be removed.

  2. Offer us rates that are competitive to PSU Banks – In times of Global slow down where inflation has fallen to lowest level in the last 7 years CRR, Repo Rates & reverse repo rate been cut by RBI number of times I am still paying interest rate higher than what I was paying a year back.


  1. Interest rate changes need to happen only by PLR changes not by increasing discounts as your present structure is not transparent.


  1. Removal of pre-payment changes - I would also like to mention that if you continue to charge arbitrary interest rates from your customers this amount does not remain legal & the customer has a right to move to a bank which offers the right rates. I would also like to add that basis the situation that we have today as discussed above I feel HDFC is forcing its customers to look out & change to other banks who are offering far lower rates & have a better track record in terms of transparency thus in such situation the pre-payment penalty concept is unethical. You should work towards retaining your customers through service & competitive rates rather than penalty.


  1. HDFC should share with its customers how PLR is derived - As of now your customers are not aware how you fix PLR. Your company should take lead & explain the basis for the same which will increase transparency & restore customer faith.


  1. Benefits and Encouragements – In fact you should encourage prepayment of the loan amount by the customers by providing them some bonus, as it will increase the liquidity in the market at this juncture.

The confidence which has been lost in HDFC due the foregoing reasons can only be restored when you favorable reply & action from your side. My expectation is that HDFC will behave like a responsible company who understand the tough times that everyone is going through and will come out with a suitable package of mutual benefit of all the parties. I hope you will not wait for a situation like the one in US (Mortgage Crisis) before you act.

I request you to take action on this ASAP, failing which I shall be left with no option but to take suitable actions to protect my hard earned money which includes moving my home loan to a PSU bank. It’s been 2 months since we forwarded this letter to you. I hope that HDFC Management will respond to my concerns favorably and satisfactorily and will retain their loyal customers.

 Thanking you and look forward to your earliest reply,



Loan Account No – XXXXXXXX