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 Law or Lawlessness of The Land? How Banks Have Been Exploiting Home Loan Borrowers

By Professor P Radhakrishnan

15 September, 2015
Countercurrents.org

The manner in which banks hoodwink customers to take home loans while, at the same time, creating provisions to escape responsibility of accidental damages to the mortgaged property by forcing the borrowers to go for insurance cover at their own cost and keeping the policies in bank's custody failing which the banks themselves taking policies and debiting the premium amounts to the borrowers' home loan accounts is a new exploitative trend without any legal basis, an unfair trade practice which needs to be stopped.

 

This article raises issues relating to the above, of which the most important are concerning clause 21/22 (Page 6) of the home loan agreement form on the website of Canara bank. In public interest, particularly of ordinary citizens, The PMO, the Law Ministry, and the Finance Ministry should interpret and tell the nation Canara bank's home loan agreement extract given below. In the name of law citizens should not be arm-twisted and taken for a ride by any bank.

 

It is a known fact that nationalised banks are a law unto themselves with corruption, underhand wheeling-dealing and callous, careless, irresponsible and authoritarian ways of dealing with the customers. A glaring example of this is the manner in which Canara bank has been dealing with home loan cases and home loan borrowers.

 

Bank officials tout for borrowers going from office to office. When someone approaches a bank branch for a home loan it offers the loan after satisfying itself with the various required documents from the borrower. But the bank does not disclose its terms till the last minute, and often even after sanctioning the loan.

 

A case in point is the bank's insurance racket. Canara bank forces the borrowers to sign the loan agreement across the table without giving a copy of it in advance and without allowing the borrowers to read and understand the various clauses of the agreement, leave alone allowing them to seek legal opinion.

 

An appalling instance of the bank's recklessness, lawlessness, and authoritarian style of functioning is evident from clause 21 in its agreement form:

 

The borrower/s shall adequately insure the schedule property for the full market value against risk of fire, war, riots, civil commotion, strike, accident, risk and also such other purposes as may be prescribed by the law for the time being in force and as required by the Bank and keep the policy always current by duly and punctually paying the premia [sic!] from time to time and to assign the benefits in insurance policy thereof to the Bank. The Bank shall be entitled for all the benefits of all such policies.

The Borrower/s hereby agree/s and undertake/s to do everything to transfer and effectively vest in the Bank the benefits of all such policies. The Borrower/s further agree/s to indemnify the Bank against loss by reason of damage or destruction or loss to the schedule property from any cause whatsoever for reason of claim by third party in respect of the same.

 

The Bank is at liberty and is not bound to effect such insurance at the risk, responsibility and expenses of the Borrower/ s with any Insurance Company only to the extent of the value of schedule property as estimated by the Bank and that in the event of insuring the schedule property, the Bank shall not be considered or deemed to be responsible or liable for non-admission or rejection of the claim wholly or in part whether the claim is made by the Bank or by the Borrower/s. It is expressly undertaken by the Borrower/s that he/she/they shall himself/herself/themselves of his/her/their own accord take all steps like initiation of filing claims/furnishing necessary information to the Bank/insurance Company without being informed of details of loss/damage for any reason whatsoever. In the event of rejection of claim either wholly or in part on account of loss/damage to the security, the Borrower/s shall be liable to repay to the Bank the entire outstanding liability without requiring the Bank to proceed in the first instance against the Insurance Company.

 

The clause above does not explain   prescribed by the law for the time being in force, and does not mention that law. That apart, the agreement in the context of insurance cover is one-sided, arbitrary, vague and whimsical. The last sentence in the clause above is particularly disturbing as it is anti-borrower and against natural justice. To repeat it:   

 

In the event of rejection of claim either wholly or partly on account of loss/damage to the security, the Borrower shall be liable to repay to the Bank the entire outstanding liability without requiring the Bank to proceed in the first instance against the Insurance Company.

 

More often than not the bank has its own insurance tie-up, which the borrowers would not know. The borrowers are not even informed about and apprised of the need for insurance, though the provision is in the agreement which the borrowers would not know as the agreements are signed across the table and the bank does not give a copy of the signed agreement. Without even informing, consulting, and getting the consent of the borrower, the bank takes insurance cover on its own and debits the amount to the borrower's loan account. It does not care for the norms for insurance cover:

 

In the Dos and Don'ts for property insurance the Insurance Regulatory and Development Authority of India has stated on its website: 

 

Don't allow anyone else to fill your proposal form; and no kind of loan should be bundled with other products, insurance policy is a separate product. The website of United India Insurance Company from which the policies were taken by the bank says:  Fill the proposal form yourself and give complete and factual information. False or misleading information could lead to disputes at the time of a claim. Do not sign a blank proposal form or leave any portion unanswered.

 

Some of the insurance companies have also said the same thing on their websites. 

 

The above state affair raises at least the following crucial issues: 

 

(1) If the bank has passed on the responsibility of insurance claim to the borrower, what is the need for it to take the insurance policy and keep it with it?

 

(2) When the policy taken is in the bank's custody how will the borrower make any insurance claim?

 

(3) As title deed of the property is mortgaged as security for the loan along with collateral guarantee, and the interest on the loan is exorbitant, if the bank is paranoid about the loan given, should it not take insurance at its own cost?

 

(4) How can the bank take insurance policy on the property mortgaged without the form being filled up and signed by the borrower?

Having taken all legal safeguards from the borrower such as title deed mortgage, collateral guarantee, and undertaking by the employer, where is the legal provision to have additional protection to the mortgage with insurance taken by the bank at borrower's cost?

 

There is a banking ombudsman set up by the RBI, but it is ineffective, and its weight is on the side of the banks. Aggrieved bank customers hardly get any justice or have any effective grievance redress mechanism. This has been extensively reported in the media. So also the home loan, insurance, and bundling rackets of the banks.

 

Can the PMO, the law ministry and the finance ministry order a thorough probe into the home-loan rackets of the banks, the rackets of the tie-up these banks have with insurance companies, their glaring unfair commercial and financial practices to the disadvantage of the borrowers; come out with a White Paper, and start regulating the banks and insurance companies in the interest of the customers and the nation at large?

 

One of the best practices of any public institution is to display on its website details such as email addresses and landline and mobile numbers of top officials. The Canara bank has not done this. What is worse, it is not possible to contact them on phone or get their email addresses even on request.

 

[The author was professor of sociology at the Madras Institute of Development Studies, and is a commentator on public affairs. Email: [email protected] ]



 

 

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