Only a few signatures on some bank loan papers stood between Deepak Kulkarni, a senior executive in a communications firm, and the car he eyed in the showroom on his way to work everyday.
Or so he thought.
When he recently approached two leading private sector banks, he was in for a rude shock. Among the many documents he was asked to sign by both banks was a “surrender letter” — a document that declared him a defaulter even before the loan was sanctioned.
Kulkarni refused to sign and was flatly told the application would not be considered. “Others do not have a problem signing it,” the direct selling agent argued.
Surprising though it may sound, banking industry sources admit that most banks have had this “surrender letter” as part of auto loan applications for a while now.
Only the format varies with each bank. Some banks are low-key, producing a letter stating you have taken an auto loan from the bank and since “X” amount is outstanding, you authorise the bank or its enforcement agency to take possession of the vehicle.
“This letter has blank spaces where banks fill in the relevant numbers and give it to the enforcement agency. Most applicants are not even aware of its existence because it is quietly slipped in with a large number of other declarations,” said a lawyer with a private sector bank.
Others are more direct, requiring declarations that read thus: “I hereby voluntarily surrender the product(s) to the …Bank (or any collection/enforcement/repossession agency nominated by ...Bank) in accordance with the ...Bank’s rights, in accordance with the loan terms... whose terms and conditions I have violated by defaulting on the repayment of the facility and all other money payable in respect thereof to ...Bank.”
Shorn of the officialese, this letter clearly declares you a defaulter before such a situation arises.
Worse still, this letter is not part of the copy of the loan agreement given to you, a violation of the Reserve Bank of India’s guidelines that stipulate banks should give copies of all documents you sign when applying for a loan.
“Banks/FIs are hereby advised to invariably furnish a copy of the loan document along with a copy of each of the enclosures quoted in the loan agreement to all the borrowers at the time of sanction/disbursement of loan,” says RBI’s August 22, 2007, directive.
Why does the need for a “surrender letter” arise? When Business Standard contacted the head of an auto loan firm, he denied the existence of such a document. When the letter was emailed to him, he dismissed it as standard industry practice, refusing to elaborate.
Other bankers argued it was a sort of hedge against a potential default, a strange argument, considering the loan document contains clauses clearly outlining the consequences of default.
Consumer activist Jehangir Gai suggests, “though the document has no legal standing, banks use this more to put psychological pressure on the borrower.” Also, the letter gives recovery agents some ammunition when they approach the defaulter.
As for the RBI, though it is aware of these “surrender letters”, it says there are no complaints on the issue with banking ombudsmen. “Consumers should always insist on a copy of all documents that they have signed,” added a senior RBI official.
Kulkarni, however, has decided not to sign any such letter. Instead, he approached his employer’s official banking partner that has not insisted on such documentation.
