Why do banks seek so many details for providing car loans

One evening I sat down to fill up the form and my blood pressure started shooting up. Insane and inane details needed to be filled in.

BHPian MadinMumbai recently shared this with other enthusiasts.

In July 2021 we were ready to purchase a new car. Decision was made and, like we have done over the last 25 years, we started enquiring about car loans. The best deal was offered by a nationalised bank so we contacted the loan officer and he promptly dispatched an application form.

So far so good.

One evening I sat down to fill up the form and my blood pressure started shooting up. Insane and inane details needed to be filled in. In addition to the usual KYC and income details the form had columns about religion, caste, children etc..

Why does a bank need to know my religion or caste? And what will they do with details about my children? This is a business deal. I borrow money and the only thing they need to know is my ability to pay back the loan. But clearly the details needed to be filled as per the loan officer. I flatly refused. We then broke the piggy bank and bought the car.

Have any of you faced this kind of form? Is it even legal for a bank to ask for these details? What will they do if I am from a certain religion or caste? Or if I have 1 child or 16 children? Will they deny me a loan basis these details?

Here's what BHPian padmrajravi had to say on the matter:

I borrow money and the only thing they need to know is my ability to pay back the loan.

Yes, that's exactly why they need to know your caste, religion, number of kids, their age, number of other family members, age, their medical history and endless other details.

The machine learning models in modern banks consider all these details to decide whether your loan is a safe bet or not. Your loan may be pre-approved now, but whether your loan ended up being a profitable business or not, is a critical data point and will be included in the next iteration of training. This will impact the risk score assignment for future applicants like you.

Yes, it is offensive, but that is where the world has gone to. If you want to get a loan without such details, head to a cooperative bank or a rural bank that hasn't yet embraced such processes.

Here's what BHPian locusjag had to say on the matter:

The loan sanctioning officer has skin in the game. PSU bank officers get the CBI hot on their heels when big loans go bad. My dad, who worked in a PSU bank, had sanctioned a big commercial loan which went bad and guess what - the CBI investigation stretched on after his retirement, they held on to his pension and it almost came to a point where he could've been imprisoned! Thankfully, truth prevailed and my dad was absolved of any suspicions by a judge.

Another colleague of his had sanctioned a loan for a Skoda Octavia 10 years ago and the customer just upped and got lost in the world along with the car. He simply became untraceable. I had tried searching for him unsuccessfully through my company's HR, as he had worked in my organization when he had obtained the car loan... So dad's colleague also came under the CBI's scanner, since a few other loans of his had similarly gone bad. The assumption always is - is this employee a bad apple, did he give away the bank's money in collusion with fraudulent applicants?

The bank itself has skin in the game. Officers and leaders at various levels are answerable for NPAs (non performing assets).

I imagine that private banks will terminate their employees based off of NPAs.

You'll be surprised with the gregarious ways in which our junta indulges in frauds, at the expense of hapless bank employees. I know of one other instance where a guy got personal loans from various banks, used all that money to buy a seat at a prestigious B School abroad and then legally changed his name and flew abroad.

So maybe - our banks are trying to fetch as many variables as possible and are possibly comparing against past NPA experience to predict red flags in current loan applicants.

Here's what BHPian The Rationalist had to say on the matter:

First of all congratulations on saving a lot of money, buying a car on loan is a loss making exercise unless you are an astute investor who can generate returns that's far above the damages from loans.

I haven't faced this for loans, but have faced it when my daughter was born. Me and wife belong to different religions (not love marriage!), but I'm an atheist, so didn't give my daughter any religion in column in birth registration at hospital. They told you have to fill either mine or wife's religion. I told them, please give it in writing and I shall meet them in court. They backed off.

Our country is running at least 5 decades behind in thought process and simplifying procedures. It's all due to the redundant educational system I feel.

Here's what BHPian Overlander had to say on the matter:

Being one of these “faceless, brainless” people, I can assure you that the loan being provided to you will not be determined by the information you have provided. However, such details are mandated by no lesser than the Reserve Bank of India, that requires, at various methods and timelines, banks to provide data on inclusivity, priority sector lending etc. If people have time (outside of their gruelling work schedule) can read up on the regulations on PSL, amendments to the FEMA guidelines, Master Circular on Credit Facilities to Minority Communities, to name a few, where the background of customers are pivotal determinants.

While I am not at liberty to attest or vouch for the data requested by this Bank on a rather straight-jacketed auto loan application, each of these would be a customer profile feed in their processing system that some poor soul at Operations shop will have to punch in, some poor guy at the HQ will have to demonstrate in their next RBI on-site inspection. Retail Banking isn’t a very easy practice, I can assure you. But I am happy that as an informed customer, you agreed to exercise your rights to privacy of information, which by the way is the new fad/wave in the financial world.

Congratulations on the new car purchase It indeed is a wonderful time in one’s life, don’t allow these trivial details to mar or impair that. Cheers.

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