CCI Rejects Complaint against Hero Fincorp for Alleged Abuse of Dominance

CCI Rejects Complaint against Hero Fincorp for Alleged Abuse of Dominance

The Competition Commission of India (CCI), headed by Ravneet Kaur (Chairperson), Sangeeta Verma (Member), and Bhagwant Singh Bishnoi (Member), concluded the complaint submitted by Synco Industries Limited (Informant) against Hero FinCorp Ltd. The complaint alleged a violation of the provisions of section 4(1) of the Competition Act, 2002 (Act). The CCI subsequently closed the case.

The Informant, a publicly listed company engaged in the manufacture of engineering equipment, secured a loan amounting to ₹5 crore from Hero FinCorp. This loan featured a variable interest rate linked to the Hero FinCorp Prime Lending Rate (HFC PLR), initially established at 12 per cent per annum with a negative spread of 1.5 per cent. Consequently, this structure resulted in an effective annual interest rate of 10.5 per cent. The terms of the loan were influenced by the Reserve Bank of India (RBI) repo rate, which stood at 6.25 per cent during the loan's approval and was subsequently raised to 6.50 per cent on August 1, 2018. Roughly three months later, on November 6, 2018, the HFC PLR was augmented by 1 per cent, leading to an increase in the interest rate from 10.5 per cent to 11.5 per cent.

The Informant contended that despite a subsequent reduction in the RBI repo rate to 4 per cent, Hero FinCorp refrained from lowering the interest rate on the loan. The Informant put forth that the adjustments to Hero FinCorp's benchmark interest rate lacked transparency, and the company persisted in imposing higher interest rates even as prevailing market rates declined. The Informant further asserted that the most suitable benchmark for reflecting market rates was the State Bank of India's Marginal Cost of Funds-based Lending Rate (MCLR), which also experienced a decrease corresponding to the repo rate.

Upon the Informant's intention to pre-pay the loan, Hero FinCorp extended an offer of a 1.25 per cent reduction in the interest rate, accompanied by a switch fee amounting to ₹29,500. This proposal was made even though the Informant had not specifically requested a transition from floating to fixed rates or modifications to the interest spread.

The Informant contended that Hero FinCorp's behaviour amounted to an abuse of its dominant position within the market. This alleged misconduct involved exploiting customers by subjecting them to excessive charges through deliberate and coordinated actions. The allegations encompassed the imposition of unjustified fees, manipulation of floating interest rates for personal financial benefit, and the failure to transmit decreases in the repo rate to borrowers.

The CCI concluded the complaint and determined that Hero FinCorp had not breached Section 4 of the Competition Act. In evaluating the issue under Section 4 of the Act, the CCI scrutinized the pertinent market, entailing an assessment of the applicable product market and the relevant geographic market in line with the definitions presented in Sections 2(t) and 2(s) of the Act.

The Commission highlighted that Hero FinCorp met the criteria of an "enterprise" as defined in section 2(h) of the Act. Additionally, it emphasized that loans against property are currently distinguished from other categories of loans, such as personal loans, property loans, and home loans. Consequently, the appropriate product market was identified as the "market for the provision of loans against property."

Furthermore, the Commission noted that the pertinent market hosts a multitude of service providers who are engaged in offering loans against property, engaging in competition within this domain. Additionally, the Commission recognized that there is no regional differentiation when it comes to obtaining loans against property across various parts of India. As a consequence, the relevant market was identified as the "market for the provision of loans against property in India."

The Commission reached the conclusion that there was insufficient evidence to substantiate Hero FinCorp's dominance within the mentioned market. Additionally, apart from Non-Banking Financial Companies (NBFCs), several other financial institutions, including public sector banks, private sector banks, and regional rural banks, operate within the same sector. These entities engage in competitive rivalry to offer loans against property to eligible borrowers, thereby further weakening the assertion of Hero FinCorp's dominance.