Gross Negligence

A vehicle loan of ₹120.00 lakhs was sanctioned by a branch of “X” Bank. The borrower proceeded to the dealer to take possession of a BMW car. The borrower requested the Branch Manager to disburse the loan proceeds, along with the available margin in his account, directly to the car dealer.

Upon contacting the advances officer, the Branch Manager was informed that the loan documents had not yet been signed by the borrower. This information was relayed to the borrower, and the manager communicated the loan disbursement could not be processed due to pending documentation. The borrower, being an HNI customer of the branch, requested the disbursement of the loan while at an out-of town dealership, promising to execute the necessary documents the following day.

Trusting the borrower's assurance, the branch proceeded with the loan disbursement and remitted the loan proceeds, along with the margin, to the car dealer. Subsequently, both the borrower and branch officials became occupied with their routine duties, leading to an oversight in the execution of the loan documents. Furthermore, the creation of Bank’s charge on the vehicle with the RTO office was not ensured.

Fifteen days subsequent to the loan disbursement, the borrower unfortunately passed away due to a cardiac arrest. The borrower's family, lacking the requisite business acumen, was unable to sustain the enterprise, leading to substantial financial losses and its eventual closure. Consequently, the vehicle was sold by the family to settle outstanding market debts incurred by the deceased borrower.

The Branch Manager discovered that the vehicle had been sold without the Bank's knowledge when they contacted the family. Upon seeking recovery of the car loan, the family asserted their unawareness of the loan and the lien on the vehicle, stating that they had sold it to settle outstanding debts.

Two months subsequently, the RBIA team verified the loan and noted that the loan documents, including the agreement and other requisite annexes, lacked the borrower’s signature. Furthermore, the copy of the RC with the Bank's lien was absent, and the original invoice in the borrower's name was unavailable for

verification.

OBSERVED DEFICIENCIES

• Loan documents were not executed by the borrower prior to disbursement.• The charge with the RTO Office was not created in the Bank's favor.• Inadequate compliance with sanctioned terms and conditions.• Negligence in the monitoring of loan accounts.