"I applied for a personal loan and submitted required documents to the bank. After receiving the documents the banker intimated it to my wife that I had applied a loan of Rs.1.00 lakh. If the bank is going to reveal it to my wife, they should make it a condition that loanee should obtain permission from his wife?"
This email from an irate customer who had sought a personal loan from a bank reminded me once again how some processes outlive their utility.
The bank's verification system seems quite faulty in today's context when there are so many other check mechanisms at work. The bank employee's stand was that it's his duty to check the customer's house and reveal the matter to family members. But I feel that checking residential status is fine, but disclosing facts before family members is not warranted especially if customer has an objection.
One of the significant issues faced by the industry in the early wild- west days was what is referred to as "Skip" cases where the consumer took the loan but defaulted from the first installment itself and was not traceable thereafter. The documents submitted by the fraudster would turn out to be forged or in somebody else's name who was not even aware that his name was being used to get a loan. Hence most banks engaged external agencies that visited the consumer's stated residential and office address to verify that they actually stayed/worked there, additionally a separate set of people also called upon the given residential and office telephone numbers to double check the same. The physical verification process also involved checking the lifestyle (the type of building/locality and the condition of the flat and the visible consumer durables), number of dependants and checking possible political affiliations (photos with political leaders on the walls), etc. The physical verification process was carried out by ill paid and nearly untrained staff (given the high employee turnover ratios in such agencies) who more often than not made a complete hash of the job given to them.
I would like to narrate some hilarious instances from my personal experience when I accompanied such verifiers on their rounds during the time when I was at a retail bank. On that mystery shopping trip the verifier took me to a well-known media production house (though it was not so well-known then). My companion — the bank's agency's employee who had gone for the verification of the details of the owner as she had applied for a consumer durable loan. He reached the reception and enquired about her presence in office. That authoritative tone is still fresh in my mind as if he was calling on her on behalf of CID office and not from a bank. The sanction of her loan hinged on the report given by this employee from bank's verification agency even for a owner of a big media production house.
Then on another trip to the premises of a small time businessmen who had all the documents in place, a photograph on his office wall turned the table against his loan application, which probably held a place of pride in his office. So what was peculiar about this photograph? The incumbent was receiving award from a politician in a function. Inference was that he was politically connected, so negative entry in his verification chart.
It is an expensive and extremely intrusive process but it was still worth it to prevent fraud especially then. Much water has flown down the Ganges since those wild-west days though almost every private sector bank continues the process till today. The biggest change has been introduction of the Credit Bureaus which have extensive coverage and even consumers have become aware of the importance of maintaining a good credit history. Apart from the credit history the credit report contains the addresses reported to the various lenders in the past. Of course the documents submitted for meeting the KYC norms are also far more robust than they used to be in those days. So at least for consumers with extensive good credit history and the address being the same as mentioned in the credit information report, there should really be no reason for using this expensive and intrusive process. I mean the process is so ingrained that even when an existing customer of long standing with an excellent repayment track record with the same bank and the address being the same as earlier is still subjected to this process. Fortunately the public sector banks have, by and large, not been in the habit of using this process and hence at least their consumers are spared from this.
The number of "skip" cases has been reduced to almost nil and it is about time that the private sector banks also look at "skipping" away from using this expensive and intrusive process.
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