No Abuse Of Dominance: CCI Dismisses Complaint Against Hero Fincorp, Citing No Contravention Of Section 4 Of The Competition Act

Brief Facts:

The Informant, a public listed company, manufacturing engineering equipment, obtained a loan of Rs. 5 Crore from Hero FinCorp. The loan had a floating interest rate linked to Hero FinCorp Prime Lending Rate (HFC PLR), set at 12.00% per year with a negative spread of 1.5%. This resulted in an effective interest rate of 10.5% per year. The loan terms were influenced by the Reserve Bank of India (RBI) repo rate, which was 6.25% at the time of loan approval and later increased to 6.50% on 01.08.2018. After around 3 months, the HFC PLR was raised by 1%, causing the interest rate to increase from 10.5% to 11.5% on 06.11.2018.

The Informant alleged that despite a subsequent decrease in the RBI repo rate to 4%, Hero FinCorp did not reduce the interest rate on the loan. The Informant submitted that Hero FinCorp's benchmark interest rate adjustments were not transparent and that it continued to charge higher interest rates even as market rates decreased. The Informant argued that the most appropriate benchmark for market rates is the State Bank of India's Marginal Cost of funds-based Lending Rate (MCLR), which also decreased with the repo rate.

When the Informant sought to pre-pay the loan, Hero FinCorp offered a 1.25% interest rate reduction with a switch fee of Rs. 29,500, even though the Informant had not requested a switch from floating to fixed rates or changes in the interest spread.

The Informant argued that Hero FinCorp's conduct constituted an abuse of its dominant market position by exploiting its customers by overcharging them through planned and conspiratorial actions. The accusations include imposing unreasonable charges, manipulating floating interest rates for financial gain, and neglecting to pass on reductions in the repo rate to borrowers.

Observations of the Commission:

CCI closed the complaint and held that Hero FinCorp did not violate Section 4 of the Competition Act. To assess the matter under Section 4 of the Act, the CCI determined the relevant market, involving examination of the relevant product market and the relevant geographic market as per Sections 2(t) and 2(s) of the Act.

The Commission pointed out that Hero FinCorp qualified as an "enterprise" under section 2(h) of the Act. Further, it noted that presently, loans against property are distinct from other types of loans like personal loans, property loans, and home loans. Thus, the relevant product market is the "market for the provision of loans against property."

Additionally, the Commission observed that there are numerous service providers operating in this relevant market, competing with one another to offer loans against property. The Commission also noted that there is no geographical distinction concerning obtaining loans against property across different regions within India. As a result, the relevant market is the "market for the provision of loans against property in India."

The Commission concluded that it did not find sufficient evidence to establish Hero FinCorp's dominance in the said market. Furthermore, aside from Non-Banking Financial Companies (NBFCs), there are several financial institutions including public sector banks, private sector banks, and regional rural banks that fall within the same category. These entities compete amongst themselves to provide loans against property to eligible borrowers, which further negates the claim of Hero FinCorp's dominance.

Case Title: Synco Industries Limited vs. Hero FinCorp Ltd.

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