Loans: Banks to write reason-ably

Amit Agnihotri / TNN / Mar 17, 2007, 02:48 IST

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From now onwards, if your loan or credit card application is rejected, the bank will have to give the reason in writing.

CHANDIGARH: From now onwards, if your loan or credit card application is rejected, the bank will have to give the reason in writing.
Following a Reserve Bank of India directive, not only will the step bring transparency in the banking system, it will also help applicants know the shortcomings in their documentation.
Often, individuals would not know the correct procedures or the importance of vital financial parameters to be stated in their applications and would be left perplexed.
Henceforth, they would be able to remove the unnecessary paperwork.

Regional director of the PHD Chamber of Commerce and Industry PK Verma said, "We have been raising this issue with the RBI for quite some time. We are happy that this has come now. Small and medium enterprises (SMEs) often complain that either the bank does not give them loan or they ask for collateral even on amounts lower than Rs 25 lakh up to which there should be no collateral according to government rules."
Verma said Union finance minister P Chidambaram had announced last year that credit to the SMEs needs to be doubled in five years and it should increase at 20% per year.

Welcoming the move, executive vice-president of HDFC Bank Neena Singh said, "It is a good decision and will benefit both the banks and their customers."
Bankers said though there might be some bitterness initially among the customers when they would get to know reasons for their application rejections, things would even out in the long run.
"The bank would benefit as the number of credit defaulters will reduce once we start presenting bounce cheques as proof," said a senior private banker.
Hoping that adhocism in the banking system will go; businessmen said institutions like banks could not be run on whims and fancies of the people manning them.
"Earlier, no reason was given to the consumer in case of pending applications for loans or credit cards. This will go away now," said Gopal Nath Aggarwal, a businessman.

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