Banks must clearly communicate circulars reducing interest rates to customers: Karnataka High Court

A notification on a reduction of interest rate on loans is not adequately conveyed to customers if the bank has only pasted it on its notice board, the Karnataka High Court recently said [Canara Bank v. Shekha BS and Anr]..A Bench of Chief Justice Ritu Raj Awasthi and Justice Suraj Govindaraj said that mere pasting of such circular on notice board cannot be treated as wide circulation of circular."We are not satisfied with the stand of the Bank in this regard. There was no wide circulation of the circular of the Bank and as such, mere pasting of the circular on notice board can not be treated as wide circulation of the circular," the Bench observed. It, therefore, directed the Canara Bank to give a customer the benefit of reduced rates of interest. The Bench thus dismissed an appeal filed by the bank, challenging an order issued by writ court directing them to give the benefit of reduction in the rate of interest on a loan to the respondents from the date an RBI circular reducing said rates was issued, and not from the date they applied for the reduction of interest rates."The Bank has reduced the rate of interest on home loan on the direction issued by RBI as per Government directives and as such, the stand of the Bank is not justified. In our considered opinion a customer would be eligible for reduction immediately on the RBI issuing the circular and the bank cannot impose any additional conditions," the High Court ruled. .The respondent, Shekhar BS, had secured a loan at rate of 11.75 per cent from the Canara Bank on December 14, 2007. The bank had reduced interest rates to 8.25 per cent through a circular dated June 30 2010, which the respondent was unaware of as the information had not been communicated to him. On January 24, 2017 he applied seeking the benefit of the lowered rate of interest. However, the bank cut interest rates with effect from the day of the application, and not from the date of issuance of the lowered rate of interest. .Counsel for the appellant-Bank, advocate M Mohan Rao, argued that the lowered rate of interest was available to customers from the date of application, and not from the date of the issuance of the circular. The circular had been pasted on the notice board of the bank, so there was due communication to the customers, it was contended.The Court, however, said that it was not satisfied with the stand of the bank and consequently dismissed the appeal. .[Read Order]