Bank told to compensate for failure to ensure proper insurance cover

1) Floating rate of interest: Treating the Spread as variable: A complainant had availed himself of home loan from a bank repayable in ten years at floating rate of interest. According to the sanction letter, the interest rate applicable was to be PLR minus 3.75 per cent (spread).

Instead of reducing the interest rate subsequently with reduction in PLR, the bank had kept the interest rate unchanged by changing the spread to BPLR, although, the spread should have remained constant while the BPLR could be changed by the bank, depending on market movements. Moreover, the interest rates could be changed only at the time of review/renewal of account, which was also not followed by the bank, the rates being charged on adhoc basis.

The Banking Ombudsman directed the bank to recast the amount of interest payable by the complainant at the rate agreed at the time of sanctioning of housing loan and revise only at the time of review/renewal of account.

2) Non-payment of sum assured against home loan insurance cover: A complaint was lodged by the widow of the borrower for non-payment of sum assured against insurance policy taken against home loan. The loan was disbursed by the bank and insurance premium was also debited to the loan account. The bank stated that a demand draft was issued in favour of the insurance company and despatched to them.

However, the insurance policy was not issued and the bank made no efforts to follow up with the insurance company to rectify the position. Unfortunately, the borrower expired and the failure of the bank to ensure proper insurance cover deprived the widow of the borrower and his legal heirs, the benefit of the insurance cover. The BO held that the bank's failure to ensure proper insurance cover according to the terms and conditions of sanction or advise the complainant to find alternate cover, constituted deficiency of service. The sum assured under the insurance policy was quantified as the amount of actual loss and the bank was directed to pay Rs 4.28 lakh to compensate the complainant.

3) Levying of charges in housing loan account: A borrower had complained that the bank had levied supervision charges and service tax in his housing loan account without any prior information.

The bank submitted that the charges were recovered according to its internal guidelines and furnished a copy of loan sanction letter according to which processing charges and service charges were to be recovered from the loanee. These charges did not include supervision charges. Therefore, the bank was advised to justify the necessity of supervision charges in the housing loan account as these were not specifically mentioned in the loan sanction letter, failing which the bank should reverse the charges. As advised by the BO, the bank had reversed the supervision charges in the complainant's loan account.

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