- Sahara Housing Finance -

Introduction & Objective

Part prepayment is a generally accepted practice in our industry wherein borrower/s partly prepay their loan before the actual date of maturity so as to reduce the loan amount outstanding and thereby progressively relieve themselves of the loan/ excessive interest burden.

The primary objectives of the Policy is to formulate a system wherein the facility be offered to the intending borrower/s and further to insulate the company from the abrupt fund inflow vide part prepayment thereby creating an unexpected reserve fund which otherwise was deployed for a particular period of time and as a result generating return and income. In order to deter such prepayment/unpredictable scenario and further to cushion the company from the opportunity loss, the industry claims a “Charge” on such part-prepayments. However, in keeping with the stiff business competition, companies offer “Zero” charges on part pre-payment facility following certain basic guidelines/directions.

SHCL also offers its borrower/s the said facility of “Zero” Prepayment Charge but incidentally the internal guidelines were not framed as a Policy thereby resulting to opportunity loss to the company and/or operational inconvenience. It is therefore felt pertinent to formulate the internal guidelines on “Part pre-payment” for facilitation of operations at all levels bearing in mind the industry requirements, borrower/s benefits and company’s interest.

Applicability of the Policy

The company shall ensure that the implementation of the policy for “Part Prepayment of Loan before the actual date of Maturity” is the responsibility of the entire organization and shall apply across all operational locations of the company, present and future.

The Policy

Part-prepayment of loan which results in reduction in the principal loan outstanding of a particular loan file thereby demanding changes/modification to the original/existing “Amortization Chart” of the respective borrower. The borrower/s consequent to part prepayment may desire the following:

Reduction in Loan tenure by keeping the EMI constant;
Reduction in EMI by keeping the tenure constant;
Reduction in EMI and tenure both;

(Part prepayment may even be undertaken for release of collateral/additional security. In the circumstances the guidelines stated in the “Policy for Release of Collateral(s) assigned in favour of the company and refund and/or adjustment of receipts from assigned collaterals” needs to be referred.)

The Guidelines / Directions

Part prepayment is permitted only after lapse of minimum of 6 (six) months gap between the date of final disbursement and the date of actual pre-payment. In cases wherein prepayment is desired prior to elapse of 6 (six) months from date of final disbursement, applicable prepayment charges shall be levied.
Part prepayment shall not be entertained is case where full & final disbursement has not been considered. In specific instances where the borrower/s does not intend to avail the residual balance of the “sanctioned amount”, the same to be reduced (as per the laid process) so as to be equal to the loan disbursed amount and thereafter part pre-payment be accepted (the said condition is waived for Overdue Accounts but necessary prior approval to be obtained by branches from CO – Accounts department ).
Part Prepayment shall not attract “Prepayment Charges” provided that the payment is made up-to the maximum of 25% (twenty five percentage) of Principal outstanding every “Year”. For this purpose the “Year” shall commence from the month of April and conclude in March the succeeding year and the “Principal Outstanding” shall be the outstanding of the concerned loan account at the time of prepayment (for example a loan account having Principal Outstanding of Rs.2 Lacs as on 01/04/2008 can prepay 25%, i.e. Rs.50000/- without attracting prepayment charges within the period 01/04/2008 to 31/03/2009 in one intsalment or multiple instalment but complying with the other applicable conditions of prepayment. Any prepayment during the respective “Year” which is higher than the above applicable limit shall attract prepayment charges on the total amount being prepaid). In case of pay-out is higher than the above percentage, the charges become relevant and therefore to be claimed as per the applicable norms (presently 2% of the part prepaid amount + applicable service tax). (The said condition is waived for Overdue Accounts but necessary prior approval to be obtained by branches from CO – Accounts department.)
The minimum quantum of part prepayment is Rs.20000/- (Rs. twenty thousand only) or a sum equivalent or more than 3 (three) EMIs, whichever is higher. Any sum lower than the stipulated limit shall be accepted after levying of applicable prepayment charges. (the said condition is waived for Overdue Accounts but necessary prior approval to be obtained by branches from CO – Accounts department ).

The Process:

The borrower/s to submit a written communication indicating his/her intention to part pre-pay the loan and therein clearly state the changes desired to the Amortization Chart i.e. either reduce EMI, reduce tenure or reduce EMI & tenure both. In case where no such choice is mentioned it will be deemed that “reduction in tenure” is agreed upon by the borrower/s. (Please note that for operational convenience, CO is formulating a “Prepayment Proposal Consent” to be filled up by the respective borrower desiring to prepay and which shall be construed as an application received confirming his/her intention to prepay.)
All Part-prepayment requests falling strictly under the above guidelines is to be executed at Branch level (necessarily after obtaining approval of the Branch Head). However, all the information after the part prepayment along-with the related data/documents (such as Borrower/s Request Letter, Old & Amended Amortization Chart, Payment details, Instrument Deposit Details, Borrower acknowledgement of the new amortization chart, PDC details etc.) be forwarded to Corporate Office with the recommendation of the RBH for necessary vetting, records and confirmation.
Corporate Office upon receipt of such intimation shall update Corporate records and thereafter confirm the action vide issuance of a communication for necessary records of the respective Region / Branch Office.
Request for Part-prepayment which does not fall under purview of the framed guidelines (refer Point 2) are to be forwarded by the BH with a processed note and related documents to the respective RBH for their information and recommendation. The concerned RBH shall onward transmit the same to Accounts Department – CO, which shall initiate necessary processing in synchronized consultation with the Credit Department, CO. The prepayment request upon review by both the above stated departments at CO shall be forwarded to the CEO. Upon receipt of advice from CEO, the final outcome shall be intimated to the respective Region/Branch for necessary records and compliance (as per the advice of CO). The decision of CO shall be final and binding on all.
Please note that, credit effect of the pre-payment/s accepted by cheque/ pay order / demand draft shall be given from the actual date of realization of the instruments. In case where the instruments are deposited under CMS facility/control of CO, the status of the instrument shall be intimated to the concerned branch in due course immediately upon receipt of confirmation from the clearing bank.
In case of payment by cash, the effect shall be given from the date of issuance of money receipt. However please note that payment in cash equivalent or more than Rs.100000/- in a single transaction and/or aggregate of Rs.500000/- or more in one Financial Year is to be reported (wherever required) separately to Corporate Office for records and compliance under Anti Money Laundering Act (AML).Please also remember to obtain the Permanent Account Number (PAN) in case not already availed.
In circumstances wherein after part-prepayment, the EMI undergoes a change, fresh Post Date Cheque/s (PDCs) are to be collected as per the new Amortization Chart strictly following the adopted procedure with respect to minimum PDC level. The status to be updated while submission of the PDC level statement (on a quarterly basis) to Accounts department, CO, Kolkata.
In specific cases where pursuant to Pre-payment, change is desired in Tenure only or Tenure & EMI, due care should be taken to ensure that the tenure under no circumstances increases the “actual tenure due” as at the date & time of Pre-payment.
Revision to Amortization Schedule is allowed without any cost, once a “Year”. However for every subsequent revision (EMI, Tenure or both) the same shall be considered after levying a charge (refer point 3 of CHARGES).
All branches shall ensure that the revised amortization structure pursuant to prepayment and after receipt of necessary confirmation from CO is further confirmed in writing to the concerned borrower/s and an acknowledgement of the same obtained and filed at Region / Branch level for records.

Charges & Penalties

The applicable Part prepayment charges (in case where the same does not fall under the above policy) shall be @ 2% (two percent) of the amount prepaid + applicable service tax.
In case of return/dishonor of instrument pertaining to Part prepayment, the Bank Charges applicable shall be higher of the following:
- Minimum of Rs.250/- (including applicable service tax) or
- Actual Charges Debited by the Bank + Rs.125/- (as processing fee including service tax).
Revision to “Amortization Chart” is free for one time a “Year”. However for revision for more than one time a “Year” a charge of Rs.500/- (Rupees five hundred only) + applicable service tax is leviable.

General

Periodical lumpsum payment which is part and as per the approved & in-force “Amortization Chart” of a particular loan account should not be construed as Part pre-payment and therefore will not attract any “Pre-payment Charges”.
Any change in EMI structure on account of Part-prepayment will be strictly governed by this Policy and not as stated in “the interim changes to EMI/PEMI structure” covered under the “Policy for the process/steps to be followed while requesting refund and/or adjustment of fees including insurance or any other charges / excess amount received / realized, interim changes to EMI / PEMI structure, request for foreclosure / issuance to balance confirmation, cancellation of / modification to disbursed instrument and any related circumstances which may demand change in the borrower’s ledger”. The said policy shall only be attracted when changes to EMI / PEMI is on account of situation other than that resulting due to Part-prepayment.
The company reserves to itself the rights to alter/delete/add to the Policy at any time without prior individual notice and such alterations/deletions/additions shall be binding on the customer/s.
The above Policy will come into force w.e.f. 1st May, 2008 onwards and shall be in force till rescinded in writing.
The above policy is not exhaustive but indicative based on situation/general practice that can be presumed and therefore there might be a real life situation/s which could not be determined / covered in the policy. All concerned are therefore requested to revert to Accounts Department, Corporate Office, Kolkata in such a situation so that immediate remedial/suggestive measures can be initiated without delay and thereafter such situation/s (if necessary) be incorporated after due deliberation to the Policy so as to make it dynamic, exhaustive and informative.