Buy two and get a third one at a discount. One often comes across such offers at apparel, footwear or electronic stores. Even in financial products there are such offers. Banks offer their existing borrowers additional loans at lower rates. For instance, a home loan borrower may get a car loan or a personal loan at a slightly lower rate than what is offered to other customers. But what if the bank makes it conditional for a home loan applicant to buy an insurance product in order to get the home loan approved?
The way it works is like this. When a borrower approaches a bank for a home loan, the bank will offer an insurance product and convince the customer that the approval of the loan is conditional to his taking the policy. If the customer refuses, the bank will find ways to reject the loan or offer a lower amount, which may not meet the customer's requirement.
There are several such cases and it happens across private and public sector banks, says V N Kulkarni, of debt counselling centre, Abhay. A home loan customer who is availing of a home loan running into several lakhs of rupee, may not mind spending a few hundreds or thousands as premium, especially if the bank convinces that without the insurance the home loan will not be approved.
In some cases the bank may approve the loan, but delay the disbursal of the money. If the borrower has already zeroed in on a house and is facing a time limit to pay the money, he may succumb to the pressure and agree to take the policy, in order to get the funds on time. "What if the customer already has adequate life cover and health cover? Then why should he be forced to buy more insurance policies?" Kulkarni asks.
The customer must be fully aware of the policy details before he buys it. But often banks don't disclose what ailments are not covered under the policy or ask the customer if he has some pre-existing disease. Kulkarni cites the case of a home loan borrower who was coerced into taking a health insurance policy by his bank. But when he suffered a heart attack, he was informed that the policy did not cover heart attacks. In an emailed response, the banking Ombudsman for Mumbai said, "We have not come across complaints where on refusal of taking banks' insurance policy either the loan is refused or lower home loan is sanctioned. On the other hand, banks will normally expect the customer to take housing loan with life insurance, which is advisable both from the bank's and the customer's point of view. However, they cannot force the customer to take insurance policy promoted by themselves. Customer should be free to avail the package of his choice."
The issue is that often it becomes difficult for customers to prove that the bank is forcing them. There is no demand in writing from the bank official. All communication to this effect is oral. So, it is possible that the bank's regional or zonal office may not even be aware of officials at the branch level making such demands. And for branch officials, this is an easy way to meet their targets for selling insurance.
When faced with such a situation, the best option is to refuse the insurance. If the bank rejects your loan application, then the onus is on the bank to explain why it is rejecting the loan.
"Banks are required to convey the reason for rejection of the loan, in cases where they have rejected a loan application," the Ombudsman said. If the explanation is not satisfactory, customers can approach the bank's Customer Grievance Cell. If within a month they don't get a response, they can approach the Office of the Banking Ombdusman or alternatively, the consumer forum, consumer court or civil court, the Ombdusman said.