Banks are bound to inform its customers through personal notice before discontinuing any insurance policy provided as a cover for loans granted, the apex consumer commission said.

The National Consumer Disputes Redressal Commission (NCDRC) has asked the State Bank of India (SBI) to adjust the ’personal accident policy benefits’ on the loans taken by a man, who died during the policy period, after noting that the bank had failed to inform him about discontinuing the policy.

The NCDRC also upheld the direction of the lower fora asking the bank to pay ₹15,000 towards legal expenses to Andhra Pradesh resident Surisetty Lakshmi Sai Mahalakshmamma, wife of the insured Venkata Rao, besides adjusting the home loan taken by him.

“I agree with the order of the State Commission that the bank having offered a personal accident cover as one of the conditions of the sanction letter should not have discontinued the policy suo motu without informing the insured who had opted for and were covered by this insurance,” the Bench headed by presiding member Rekha Gupta said.

“...the bank was bound to inform the insured not only by publication in the newspaper but also mandatorily by personal notice that the benefit of insurance coverage of loan as given by the sanction letter was proposed to be withdrawn so that they could make alternate arrangement, if they, so desire,” the commission added.

According to the complaint, Rao in 2009, had obtained two housing loans from SBI under two accounts for ₹8 lakh and ₹5.8 lakh.

The loan agreement was covered by ‘Free Personal Accident Insurance Policy’ which, in case of the death the borrower, could adjust the insurance amount to the bank, it said.

The complaint further said that on October 26, 2013, Rao died in an accident and the bank refused to adjust the loan amount against the insurance policy saying the policy was discontinued from July 1, 2013. Subsequently, bank had sent notice under the Sarfaesi Act.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act) allows banks and other financial institution to auction residential or commercial properties to recover loans.

The bank contended that personal accident insurance was a complementary service offered to customers and had discretion to continue or discontinue the policy at any time.

The SBI had also apprised the fora that they had published the information in newspapers and updated the same on their website and in its notice boards.

The district forum allowed the complaint and asked the bank to adjust the amount and pay legal expenses against which the bank approached the state commission.

The state forum upheld the lower fora’s order and directed the bank to serve personal notices to all customers who availed loans with insurance policy about the cancellation of such scheme to avoid future liabilities.

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