That, however, is not the case when it comes to borrowing money. Most would ask — how does it matter whether the institution one borrows from is trustworthy or not?
Harsh Roongta
In a trait commonly found across nationalities and communities, people typically consider the trustworthiness of banks and other companies when it comes to depositing their hard-earned money.
That, however, is not the case when it comes to borrowing money. Most would ask — how does it matter whether the institution one borrows from is trustworthy or not?
I was a part of this school of thought until a few months ago. But, some recent events have forced me to rethink.
Incident 1
I had signed as a guarantor for an education loan taken by my brother from a leading housing finance company, which also has a relatively lesser known education loan programme, for pursuing an MBA at the Indian School of Business (ISB), Hyderabad. The loan did not require any repayment (either of interest or principal) during the first 15 months.
However, towards the end of his one-year programme, my brother informed me that there was a problem. A lot of his fellow students had taken loans from the same institution and it seems its “system” could not handle the repayment holiday built into the structure of this loan (probably since it was built for home loan and not education loan) and continued to generate bills for the interest month after month.
And since the bills were generated but not paid, given the repayment holiday, they showed up as overdue (obviously since the education loan agreement clearly provided for the payment holiday) and eventually got reported as a default to the Credit Information Bureau (India) Ltd (Cibil). Incidentally, the loan request of another student’s guarantor had been turned down on account of this “default,” my brother informed.
I have always understood the importance of a good credit record and have taken great care to maintain a spotless repayment record. Hence, I was shocked by this.
Fortunately, my brother and his fellow affected students took up the matter strongly with the lender and given the clout of ISB, the lender took these complaints seriously. It promised to officially inform the credit bureau of the “system” error and ensure that the so called “default” was wiped off the records for both the student as well guarantor.
In practice, however, they just got the credit report of my brother. They dismissed the requirement for my credit report saying their “system” showed they had not reported the “default” in my account to the credit bureau.
However, I insisted on getting the report and despite their reluctance — perhaps because it cost Rs 50 or so to get one - they obliged. Fortunately, the credit report itself was clean, but I had spent a good four weeks being tense over it.
Incident 2
A bulky open envelope of my home loan lender with my name and address on it was handed over to the watchman of my building by a passerby who claimed to have found it on the road near my house. The watchman promptly delivered the envelope to my home.
I was horrified upon examining the contents - it had the entire documentation (fortunately, only photocopies) of my loan-against-property account, besides my income-tax returns and bank statements. What’s more, there were similar papers for seven other borrowers of the same bank. What were they doing in an envelope with my name on it? Who in the bank had access to these papers and what were they doing on the roadside? Did anyone in the bank miss those papers at all?
What would have happened if the papers had fallen into unscrupulous hands? There was no way I could have known.
What links these two incidents is operational failure. The operation-preparedness of most lenders has lagged their appetite for making advances. And yet, the lack of stringent punitive provisions helps them get away with violations.
An aggrieved consumer can complain to the Reserve Bank. However, the regulator lacks adequate teeth.
One could also approach the consumer courts, but that is time consuming. Besides, the compensation provided is peanuts.
The Credit Information Companies Regulation Act provides that banks will exercise due caution in reporting the correct figures to the bureau. Unfortunately, even this Act does not lay down any remedy the consumers can pursue directly against the lenders for wrong reporting of information.
However, the regulatory environment is now far more sensitive to these concerns and we should see gradual progress in ensuring lenders adopt the required operational procedures to minimise the occurrence of such incidents. A small beginning has already been made with the appointment of the banking ombudsman.
Harsh Roongta is the CEO of Apnaloan, which runs India’s largest market place for loans where banks compete for your loan.
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