Since personal loans are unsecured, banks are supposed to exercise due diligence before disbursing loan money to borrowers. Banks typically check the salary slips and the employment history of applicants to determine their creditworthiness. They also check whether the loan amount can be repaid easily in view of the salary indicated on the salary slips.
Banks may typically allow upto 20 times of monthly salary to borrowers as personal loans. For instance, if someone’s monthly salary is ₹1 lakh, the bank may approve a loan of upto ₹20 lakh. To navigate this obstacle, some loan applicants in Dahod (Gujarat) were found to have inflated their salary slips to become eligible for a higher loan amount.
These loan applicants had siphoned off ₹5.5 crore in collusion with two bank managers and some middlemen, reported The Times of India.
The fraud happened like this: In two SBI branches (Yadgar Chowk main branch and station road branch in Dahod town), 29 loan applicants used forged documents such as fake salary slips to get the loans approved. These cases, which also involved some middlemen, led to total loan disbursals of ₹5.5 crore to these borrowers.
Out of these 29 applicants, 17 are genuine government employees who had inflated their salaries by forging their documents, and 10 used completely false documents by claiming to be government employees while they were not.
However, it all came to light during the internal audit which concluded that the loans were given like ‘freebies’ without proper documentation. Following this, the new manager filed a police complaint against the culprits that led to the arrests of two managers under whose tenure the loans were sanctioned along with three borrowers.
This case above, although epitomises the criminal mindset of borrowers, gives myriad lessons for lay investors as well. We give a lowdown on some of these lessons.
Key points to remember before applying for a loan:
I. Always use genuine documents: Regardless of temptation or the nudge of a friend or an accomplice, never use a forged document even if it appears harmless. Use the genuine documents that can indicate your employment and income to the lender.
II. Refrain from using an agent: Although it is our culture to use someone’s reference for almost everything – from school admission to job application. But loan applications – thanks to technology – do not require too much of human intervention. Therefore, one can straightaway apply for a loan at a fintech platform online or a bank’s website instead of approaching the lender via an agent.
III. Loan limit: The limit imposed on personal loan (upto 20 times of monthly salary) is based on the loan repayment capacity. If you decide to take too high a loan, then it will be difficult to repay the loan on time. Therefore, the lower the loan amount, the better it is.
IV. Significance of credit score: Merely securing a loan is not the end of everything. One must service the loan on time as well to be able to maintain a good credit score. Failure to repay the loan could lead to blacklisting of your profile because of a poor credit score. This must be avoided at all costs.
Therefore, it is a complete ‘no-no’ to use forged documents to secure a personal loan.
Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
For all personal finance updates, visit here