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To keep loan delinquencies under check, Dena Bank has entered into a tie-up with Universal Sompo General Insurance Company (USGIC) to offer loan insurance cover to individual borrowers.
In case of unforeseen events, such as major illnesses and medical procedures, accidental death and permanent disablement, loss of job, fire mishap and allied perils at house, leading to the borrower being unable to service the loan, USGIC’s loan secure insurance policy will pay the bank equated monthly instalments for up to three months.
Unforeseen events According to Dena Bank Chairman and Managing Director Ashwani Kumar, though the bank will not earn any fee income for offering the insurance policy to individual borrowers, the policy will mitigate risks arising from the inability of borrowers to repay loans due to unforeseen circumstances.
The policy will help the bank save on provisions that it would otherwise have to make if the borrowers are unable to service the loans, said Kumar.
If the borrower is unable to regularise the loan even after three months, the insurance company will make good the loan to the bank.
Typically, the sum insured is equal to the loan amount.
The loan secure cover is available on education, auto, home, personal and other loans taken by individual borrowers.
Premium amount A senior USGIC official said the premium for the loan insurance works out to about ₹210 per ₹1 lakh loan per annum. The minimum insurance policy period is one year and maximum three years, renewable thereafter.
Kumar said about ₹21,000 crore worth of retail and small and medium enterprise loans of Dena Bank can potentially be covered by the insurance policy.
ON Singh, Executive Chairman, USGIC, said the loan secure insurance policy was introduced by his company about five months back. Till date the general insurer has been able to sell about 10,000 policies in tie-ups with four banks — Allahabad Bank, Indian Overseas Bank, Karnataka Bank (these three banks are also promoters of USGIC) and Corporation Bank.
Singh said USGIC, which currently depends on a third party administrator for claims processing, is setting up systems to process claims in-house.
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