BANKS ASKING BORROWERS TO BUY INSURANCE

Hyderabad: Several loan-seekers from banks are finding themselves in a tricky situation as they are being asked to go in for an insurance policy to enhance the ‘chances’ of loan approval. The policy is on the life of the borrower against accident and other risks.

The sale of insurance by banks is seen more in the case of those banks that have an insurance arm of their own or that are marketing the products of an insurance provider, according to sources.

While some see reason in taking an insurance cover, others feel they are being ‘coerced’ into it by banks — this is against the norms set by Insurance Regulatory and Development Authority .

“I was forced to go for a shield policy when I took a personal loan of Rs 1.3 lakh by a branch manager of a public sector bank, which cost me about Rs 12,000. I was told that the loan application would be approved only if I go for it,” Mr P. Muneeswara Rao, a small-time employee in IDL here told Business Line.

Mr Sesha Rao, a software professional with Google, agrees: “When I approached State Bank of India for a housing loan of Rs 25 lakh, I was told curtly to buy insurance as well, though I have a very reasonable cover for life.”.

Further, the customers are also denied choice. “Even though I have many insurance polices, I was made to go for another policy when I took a home loan from ICICI Bank,” Mr Ravi, an IT professional working for Computer Associates, said.

Coercion clause
Interestingly, the loan application forms of some banks indeed carry a column for insurance that even says explicitly that “efforts will be made to pursue the loanee to go for insurance”.

Bancassurance pressure
According to experts, the pressure on bank officials to sell bancassurance products to increase the fee-based income and the safe recovery of loan amount, among others, are resulting in the trend.

“It is a fact that some pressure is put on the loan applicants for insurance. It sure is a drain on the purse for them but its adds to our performance if we could convince them to go for insurance cover,” an official of a leading private bank said.

Source: G. Naga Sridhar
The Hindu Business Line