Consumer panel holds Union Bank liable, fines Rs 70,000 in student loan insurance case
In 2011, Latika Sridatta Namburi obtained an education loan of Rs 10 lakh from Union Bank of India to pursue higher studies in the United States
By - Sistla Dakshina Murthy
Representational Image
Hyderabad: Telangana State Consumer Disputes Redressal Commission has come down heavily on Union Bank of India (UBI) for not honoring an insurance claim linked to an education loan.
Dismissing the bank’s appeal, the Commission upheld the order of the District Consumer Forum (DCF), which directed the bank to cancel the loan balance and pay Rs 50,000 as compensation and Rs 20,000 towards legal costs to the borrower’s parents within 45 days.
Student took loan for studies in the U.S.
In 2011, Latika Sridatta Namburi obtained an education loan of Rs 10 lakh from Union Bank of India to pursue higher studies in the United States. The loan was insured under a life cover, and his parents mortgaged their house as security for the loan.
Tragedy struck in 2016 when Sridatta died in a road accident in the U.S. Following her death, her parents approached the bank seeking to clear the loan through the insurance claim.
However, the bank refused, stating that the insurance cover had expired in 2014 and had not been renewed. It further warned the parents to repay the entire amount or face recovery proceedings against their mortgaged property.
District Forum ruled in favour of Borrower’s Family
Aggrieved by the bank’s refusal, Sridatta’s parents approached the District Consumer Forum. After examining the case, the Forum held the bank responsible for failing to honour the insurance claim and directed it to write off the loan, pay Rs 50,000 in compensation, and Rs 20,000 towards court expenses.
Commission finds lapses in bank’s conduct
Challenging this order, the bank filed an appeal before the State Consumer Commission. After hearing both parties, the Commission confirmed that the bank had indeed acted negligently.
It noted that a circular issued by the bank in 2005 clearly stipulated that insurance coverage for education loans must extend for the borrower’s lifetime. However, the bank had unilaterally limited the coverage to three years without informing the borrower.
The Commission also pointed out that the bank failed to maintain proper records of the insurance policy and had not provided a copy to the borrower, rendering its claim that the policy expired in 2014 baseless.
‘Deficiency in Service’, Not a Loan Recovery Issue
The Commission concluded that the bank’s actions amounted to a deficiency in service rather than a mere loan recovery dispute. Dismissing the appeal, it directed the bank to implement the District Forum’s order in full and settle the compensation within the stipulated period.
