It is quite unfortunate that the Kerala State Human Rights Commission has come down heavily on Banks for insuring the education loan borrowers, as reported in various media today. With due respect to the commission, I as a retired Banker, would like to point out that it is not the policy of any Bank to make it compulsory for the borrowers to take the insurance coverage. Banker only suggest to take an insurance cover of the student or co borrower for the term of the loan so that in case of any unforeseen mishaps, the family will not be burdened with the burden of repaying the loan.
While in service, I had an experience of such a case where the student who was in the final year of studies met with an accident and passed away. The family's financial condition was very bad, and we had a tough time in getting a suitable compromise proposal approved for liquidating the loan. At that time, the parent had complained that they were not aware of any provision for insuring the life which would have come in handy at such a situation. But the Banker cannot be explicit in saying that in case the parent or the student die during the period, the insurance will take care of the loan amount outstanding. Hence we suggest that there was a provision for covering the life thorough a product of the insurance company, the premium of which will be added to the loan amount and the borrower is not asked to pay this amount upfront.
Like any other life insurance, it will come helpful only in the case of a mishap and if nothing untoward happens, the insurance company is not bound to repay the premium paid, which will affect their business badly. Hence the suggestion of the commission to refund the premium collected in the cases where the loans are repaid correctly, is made without actually studying the issues, I am afraid.
I hope and request such judicial institutions to take an overall view of the issue and all the intricacies before passing such judgement, as such judgements put the Banker in a bad light.
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