Banks must inform customers on closure of insurance schemes: NCDRC

New Delhi: 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 has 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 Rs 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by personal notice that the benefit of insurance coverage of loan as given by the sanction letter was proposed to be withdrawn so that they could make alternate arrangement, if they, so desire," the commission added.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 Rs 8 lakh and Rs 5,80,000.

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.