Also, the bank gets re-finance from RBI at measely interest adn for amount lent to a borrower which is not disclosed to any borrower.
When the borrower becomes NPA, the bank recovers the amount outstanding both from the defaulted borrower and from the insurance.
Such insurance is generally a "group insurance product" where the lending bank becomes the benficiary or nominee. This is similar to group insurance in a production unit of a factory where the workers are covered by group insurance for specified eventualities.
Also, the premium charged by the insurance company under this 'group insurance' is almost nothing compared to what any induvidual insured pays on his / her own for the same policy.
However, with the banks opening, operating and supporting insurance companies (some banks like ICICI Bank has two insurance companies); there is a common DSA (direct selling agent) catering to all requirements of the bank and its group insurance companies.
Thes banks and insurance companies work in tandem for their own beneficial interests and as a residual benefit, pass on pittance to the customer. Ofcourse, as one of the members pointed out, the premiums of these insurance companies, backed by their bank, is generally much higher than can be sourced in the market.
This is where the banks and their insurance companies play havoc and when they decide to deny a particular policy benefit to a gullble customer, they would violate IRDA norms, they would violate criminal penal code, they would violate RBI directives, they would violate fair practice norms (MRTP Act is discontinued after Consumer Protection Act got promulgated)
They don't even flinch an eye lid to create fake documents, doctor such document to their advantage, fabricate what favors them, forge signatures and are not scared to even tamper with such evidence of forgery to destroy the evidence.
Poloce and Consumer courts are more friendly with such operators or banks or insurance companies and would even discourage a complainant from taking any further steps.
Its only the Govt. which can change this scenario by enforcing stringent deterrent and punitive measures promptly to ensure that such occurences are not repeated. more
G.K.Naidu, Hyderabad more