Daybreak - Could your home loan lender be stealing from you? The secret EMI inflator you didn't know about

Episode Date: January 6, 2025

Last month though, things went crazy in Delhi NCR's real estate market. A DLF penthouse property in Gurgaon, a little over 16,000 square feet in size, sold for a mind-blogging Rs 190 crores. Just the stamp duty was Rs 13 crores, apparently.  What really shocked the internet though was the per-square-foot price—Rs 180,000. When The Ken reporter Rounak Kumar Gunjan first came across it, he immediately forwarded the news article to some of his friends who are planning to buy flats to give them a sense of the madness out out there. But his frinds, he says, pulled off a UNO reverse.Because they told him something else about India’s real-estate space that was even more intriguing. An increasingly common sinister pattern in home loans that he has since confirmed with two bankers and two insurance industry executives. Tune in!Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. If you've been listening to Daybreak for a while, you will remember that we've already spoken about the sky high property prices in Delhi.

But two crores or four crores or six crores, or say even double of that, 12 crore rupees is still within the realms of our imagination. Last month though, things went a little beyond in the National Capital Region. A DLF penthouse property in Gurgaon, a little over 16,000 square feet in size, sold for a mind-boggling 190 crore rupees. But what really shocked the internet was the per square foot price. 1,080,000 rupees. When my colleague Ronakumar Gunjin, a reporter with the Ken, came across this piece of news,

he immediately sent it to some of his friends who were planning to buy flats. Now, this was just to give them a sense of the craziness that was there in the real estate market in Delhi and Sierra. But guess what? They pulled a unor reverse on him because they told him something else about the Indian real estate space that was even more intriguing. A shockingly sinister pattern in home loans that Roanak has since confirmed with two bankers and two insurance industry executives. Welcome to Daybreak, a business podcast from the Ken.

I'm your host, Nick Daesh Sharma, and I don't chase the new cycle. Instead, every day of the week, my colleague Rahil Filippos and I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 6th of January 2025. Ronuk explained how this madness in the real estate market in Delhi has been playing out through the experience of one of his friends. And this friend requested us that we withhold his last name to protect his identity. So we're just going to call him Debian. Now, Debian is a lawyer-turned journalist who has been looking to buy a flat in Noida for the last few months.

He finally zeroed in on a house in November. Small rooms, smaller balconies, located in a housing society that boasts of a lavish clubhouse and a swimming pool that he would probably never use. You know, your typical buy for most Noida residents. The flat's final price was negotiated down to 1.2 crore rupees. The buy-in had sold off some old property and had some savings and the remaining was to be financed via a home loan. Now, you have to pay attention to this.

The total loan amount came to approximately $32,000, which he wanted to pay back over a course of 30 years. Dubaian initially went to HDFC bank for a home loan, but after comparing interest rates, he settled for Bank of Baroda, which offered him a rate of 8.35%. The trouble and the thing that we are interested in read its head, like Ronach says, when he initiated a conversation with the bank's agent about his EMI's or monthly installments. According to DeBeyn's calculations and one corroborated by multiple online EMI calculators, he should have been paying about $24,000 each month.

But his agent said that his monthly payable would be a whole 30% more expensive, $31,000. When Debian told Ronak this story, Ronak felt like he had heard this before and turns out he had. From Sneha, with whom Ronak had had a conversation recently. Now, Sneha is from Gohati and she's had a similar complaint with a loan that she had taken from State Bank of India or SBI. In fact, in her case, she had not double-checked the EMI that she had to pay and had opted for the auto-debit option. It wasn't until a couple of EMI payments later that had been debited that she realized that the payments were a little higher than what she had calculated, by about

$4,000 that month, and that is no small amount. DeBayan and Sneha's accounts were enough to prod Ronek into calling a few bankers and executives. And two former employees of ICSA Bank and HGFC Bank pointed him towards online forums where even more aggrieved borrowers were narrating similar stories. This story, it's clear, has become a common one. And the blame lies with an old culprit. Stay tuned for more. Ronak's sources told him that such instances have been happening because bank loan agents succumbing to the pressure to meet sales targets bundle what bankers

loosely referred to as home loan insurance with loans without the consent of the borrower. Such insurance policies work as a risk hedging instrument for the lender and they come in two types. First, there are life covers which pay a certain amount to the lender in the event of a borrower's death during the tenure of the loan. In this case, the loan amount is the sum assured and the bank is the eventual beneficiary. The insurance payout is to be used to settle the outstanding dues. And the outstanding loan amount is the sum insured in these cases. And so the premium goes down every year as the outstanding amount is whittled down by regular EMI payments. The second type is property insurance, which covers any physical damage to the house itself. The insurance premium is

based on the cost of potential repairs to the house and not on the loan amount. Both insurance covers serve two purposes. One, they reduce risk for the bank. And two, they give borrowers and their families a safety net in case there are unforeseen adverse circumstances. And there is no harm in doing either of those things. But it is a lack of consent that is a problem, especially when the premiums can be as high as 84,000 rupees in the first year.

According to the former HGFC Bank Executive that Ronak spoke to, and I'm quoting him, in such cases, banks act as agents for insurance companies. They bundle policies from only one or two insurance companies and quietly add the premium to the principal amount. Only a few customers noticed this and asked for an explanation. It is only then that banks divulge their breakup. end quote. In return for selling these insurance policies, banks get some relaxation from insurance companies on, say, group health policies and the likes. But many borrowers end up footing

the bill without ever knowing why until they buy-in or a sneha or people like them ask questions. And even if a borrower wants such insurance, it is only right that they have the liberty to choose a policy from an insurer of their choice and not get one foisted on them just because of their bank's tire. The former ICICI Bank executive that Ronox spoke to told him that in terms of financial loss, a borrower would have to pay interest on the insurance premium amount as well if it gets added to their loan amount. A senior executive from insurance firm HGFC Ergo told us that purchasing home loan protection plans is not necessary or compulsory at all. Neither the banking regulator nor insurance regulators prescribe such kind of covers. So lenders like banks are under no regulatory obligation to push

such insurances down the throats of borrowers. While there is no central repository of data to back the widespread use of such coercive methods, Ronak spoke to a retired SBA executive who used to be a senior officer in the bank's consumer grievance wing. And here is what he had to say. And I'm quoting him, say 10 years back, these used to be one-off instances. Presently, hundreds of such complaints come in daily. And banking executives can tell you with confidence that this illegal ploy is prevalent across banks, be it private or public.

And the main culprit is the sales pressure, And on top of that, incentives for selling policies through this method. Yes, it is illegal. End quote. So, like De Bahin, if you two are planning to opt for a home loan, make sure you ask your agent or bank for a detailed breakup of the EMI calculations. And push back like Ronak says if you think you do not need that insurance. Daybreak is produced from the newsroom of the Ken, India's first.

subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajiv CN.