shashikanth (ML) 27 January 2014

Grievance related to housing loan

I had approached IDBI Bank, Mangalore branch twice. Once when i started looking out for property and then when i finalized the property. During both the meetings i asked the person to explain me all the charges that i might incur for applying the loan. But there was no mention of loan insurance.

On 4th Jan, once the property was finalized, I spoke to the branch Asst. Manager as well as the Manager and asked them about the processing charges and if there are any other/hidden charges that i would incur. But again no mention of any insurance. So I decided to go ahead with IDBI and gave the property and other documents for loan processing.

After, i guess, 5 to 10 days, when the valuation was done. I got call from asst. bank manager saying that the valuation was done and the loan amount i was looking for can be disbursed once the legal checks are successful. He also put a word that there will be a loan insurance which i might have to take. When i asked him to give details like premium etc, he said he does not have the information but it would be very nominal and said not to worry about it and that he would go ahead with the loan processing. I immediately asked him if this was how bank was trying to extract the processing fees.

On 16th or 17 Jan I got a call from the asst. Manager saying all the procedures related to my eligibility check are completed and he was entering the details into the system. At that moment he asked me details of loan tenure etc and at the end said the loan insurance premium is approx Rs. Rs.30,000. I told him it was very high for 16 lakhs loan and i do not want it as i already have a term insurance of Rs.30 lakhs. Then he suggested options of paying in 5 years and can be disbursed with the loan. etc. I called the customer care to check if this insurance was mandatory and why i was not told about it. The executive said it was not mandatory and it seems the executive or some one from head office called the asst. Manager asking why he was forcing insurance on customers. The asst. manager himself told me this on saturday 25th Jan.

Yesterday, saturday 25th Jan, i met the asst. Manager again. He said the insurance is compulsory without which loan cannot be disbursed. He said this is the norm nowadays and if i go to any bank, the insurance is mandatory. Just to confirm, I went to a no. of banks yesterday to check about this. They only said it is advisable to go for loan insurance but not compulsory. I called the asst manager as well as the manager to tell them about my findings. They gave a simple answer, if you need the loan you need to take the insurance else i can go to other banks.

I think this is cheating. By saying insurance is mandatory at the end of loan processing they force customer to give in.

Please let me know what can i do about this.

Thanks,

Shashikanth

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3 Replies

Prasun Chandra Das (Banker) 06 February 2014

Dear Querist,

These days Third Party Products (TPP) like insurance are the easiest ways for Banks to increase income & profitability. Where IDBI Bank went wrong was to not disclose in the beginning that you will have to insure the property.

On an impartial note, since the bank is sanctioning a home loan where the security is the home, the bank is well within its rights to insist that you insure the property with bank clause, which means that if something happens to the property, the insurer pays the insured amount to the bank directly. You cannot contest the bank that you will not insure the property with bank clause. What you can do, however, is tell IDBI Bank that you will insure the property with Bank clause, but will not buy the insurance from IDBI bank. They will not like it but they cannot refuse the home loan.

Insurance premium is calculated on the reconstruction value multiplied by the flat area, and NOT on the property value or loan amount. This value or rate is constant for a city, though it may vary from on insurer to another. Since your flat area is constant, you need to scout for the lowest rate offered by different insurers. Select an insurer (check out policybazaar.com), pay the premium, insure the property WITH BANK CLAUSE, and submit the original insurance certificate to IDBI Bank. They cannot refuse the loan.

While you may not like IDBI Bank not disclosing the entire facts at the outset, I think this is the best way to handle the situation. At a later stage, you may report your griviance in writing to the bank's Central office.

shashikanth (ML) 06 February 2014

Thanks for your elaborate reply. I too agree that the bank should have some way of recovering the lent amount. While filling the application i had told the manager that i have a term insurance of 30 lacs. Even on mentioning this they never said anything about their loan insurance. Only during the final stage they said i should take their mandatory loan insurance. The insurance they suggested was for the loan amount only, not reconstruction value as you suggested.

So it clearly shows that they just want to sell their policy.

Do you think i can go to consumer court and get damages for the lost deal?

With regard to the policybazaar link that you mentioned, which insurance should i look for? i presume its term plan. Correct if i am wrong.

Thanks again.

Prasun Chandra Das (Banker) 12 February 2014

You are confusing life insurance with property insurance.

IDBI Bank is not insisting on life insurance. It is insisting you to insure with property with Bank clause. In life insurance, you die => nominee gets money. Nominee does whatever he wants to do with that money. In property insurance with bank clause, damage to property=>insurer pays IDBI Bank. Loan gets extinguished, or if any laibility is still left, you have to pay the balance amount.

Look for a property insurance and not life insurance. HDFC has a decreasing liability insurance, which means that the sum assured gets reduces as the loan liability gets reduced.

For consumer complaints, you may do whatever you choose.