THE STORY OF FLOATING RATE TO FIXED RATE CONVERSION- A SAGA WITH ICICI BANK.
by Chennai based astrologer JAYASHREE RAMALINGAM
1st JULY, 2008 8:35 PM
It all started in January 2007. My husband wanted to buy land. All his friends were buying lands and investing money in the landed properties. On of his friend suggested taking loan in ICICI bank. So we called the representative of ICICI bank. They gave all the details that go with the taking the loan. Later only we realized that it was all very superficial.
Back to the story for taking ten lakhs we need to give 13,000 as the processing charge and all the documents. We went for a mortgage loan. At this point the bank representative kept on insisting us going for the floating rate. The floating rate at that point was 11.5% and the fixed rate was 13%. Like all middle income class family we opted for the floating rate as the interest was less.
One fine evening we gave all the necessary documents along with the cheque for Rs.13000 for processing. Next day
immediately they had deposited the cheque for processing and the amount was debited from our account by 10 am. It was a quite a shock for us. Within three days of signing all the documents and processing the loan of 10 lakhs was released. By that time interest has gone to 13.5%, 2% more than what was written in the processing document. This rise had happened within three days. We were happy getting the loan and we went on to purchase two plots of land for 7 lakhs. At that time my teacher wanted some cash for he was doing remodeling of his house. We gave him RS.3 lakhs. Now my teacher kept on insisting to tell him about the interest he needs to pay us. We did not know how to calculate as there were many charges added to getting the loan like processing charge, increase in the loan interest. As we were paying Rs.1300/lakh as EMI, we asked him to give the same amount..
At this point my teacher K.B.Gopalakrishnan wanted to know the break up for this EMI – the principal and the interest component of the EMI. We didn’t have answer for it. My husband went to the bank to get it. The bank was reluctant to give that information. my teacher he kept on telling me that instinctively he did not feel alright about the whole issue. I started going to the bank. There was lot of altercations with them. Finally when they gave us the details of the principal and interest component, the interest rate has increased to 14.5%. For this increasing my tenure had risen from 180 months to 236 months. We calculated the EMI for the increased tenure period. It came to nearly Rs.5 lakhs. We were totally flabbergasted and devastated. We did not know what to do as we had paid only one EMI.
Now I started going to the bank. As I waited for my turn to speak to the executives I could see the fear and apprehension on the face of the people who had taken the loan. My turn came and I enquired the customer relation officer about the interest increase. They could not give me the correct reply. I had to resort to shouting in the bank. Now the branch manager came into the picture.
He told me that across the banks the interest had increased. I was angry at him for not informing us the increase, because as the loan recipient I was entitled to make choice of either paying the increased interest or increasing the tenure. The bank did not offer me the choice.
Now the banks calculation was like this
0.5% increase was calculated as Rs.28 to be added as excess in the EMI every month. As we were not informed about the change we remitted from our bank the original 13,000 rupees as the EMI for 10 lakhs. So there was a deficit in the EMI. The deficit amount was tallied for the entire 180 months.
Now once again the bank calculates the interest for the total deficit month. Either we can pay the deficit or they simply increase the tenure.
Mind it no bank gives the real calculation for the interest increase. There are many hidden charges. What they show us is the approximation. We got this information after we literally fought with them.
As per my teacher’s instruction I started recording all the meeting I had with the bank officials. As soon as we enter the bank area, we were asked to
My teacher then advised me to go in for fixed rate. After much pressure from our side the bank told us that it will charge 1.9% on the principal as the conversion charges. But now the bank had put the clause that we cannot convert from floating to fixed rate within the first six months of taking the loan. But the representative had told us that the conversion was possible after paying the first EMI. This was the second blow for us.
So we had to wait for five months for the conversion. Basically I realized that banks did not want their customers to change from floating rate to fixed rate. Finally we paid the fixed rate conversion amount of Rs. 19,000. At that time the fixed interest was 14% and floating interest was 14.5%. We got the reduction in the interest rates which got converted into reduced tenure of 36 months.
I should really thank my teacher K.B.Gopalakrishnan for this. Had he not intervened we would have got trapped into the eternal web of debt with the ICICI bank.
Now he wanted me to share this experience with others, which I am doing it.