HDFC Bank Forcefully Sold Costly GPS Machine To Auto-Loan Customers; Action Taken Against Staff

The HDFC Bank has pushed the car loan customers to buy GPS devices costing Rs 18,000-19,500 from for the past 4 years which ended in December 2019, according to the two people aware of the matter. The cost of the device was added to the loan amount.

Read on to find out more…

HDFC For 4 Years Has Forced Its Car Loan Borrowers to Buy GPS Devices!

This forced purchase is a possible breach of guidelines prohibiting banks from non-financial businesses, two people mentioned above said maintaining anonymity.

On July 18, the lender said it has taken action against employees in the vehicle finance unit after an investigation, without giving details.

One of  two people said, “These devices were bundled along with the loan, where reluctant applicants were told that unless they agreed to take this product, their loan would not be sanctioned.” 

Apparently, the senior executives at the auto loan unit were under extreme pressure to meet sales targets for these devices.

The Banking Regulation Act, 1949 states in its 15 sub-sections, certain businesses that a bank may engage in, apart from its role as a lender. The Act clearly states that  ‘no banking company shall engage in any form of business other than those referred to in sub-section (1)’.

HDFC Bank’s car loan book stood at Rs 81,082 crore as of June 30 that is at the end of the first quarter, down 3.39% sequentially, and constituted 17% of its retail loans.

The former group head of secured vehicle loans, Ashok Khanna, was denied an extension after receiving two post-retirement extensions, and left the bank in March. 

More About the Vehicle Tracking Device!

Trackpoint GPS, a Mumbai-based firm, sold the vehicle tracking device. Data from the Registrar of Companies (RoC) shows the company’s revenue escalated by 175 times between FY15 and FY19. With a total revenue of Rs 78.31 crore in FY19 it posted a loss of Rs 3.87 crore due to the expenses surpassing revenues. Trackpoint’s total expenses stood at Rs 80.25 crore in FY19, including components such as commission and brokerage of ?3.49 crore, and legal and professional fees of Rs 2.84 crore.

Directors of Trackpoint include Amar V. Amin, Carey Bryan Fan and Vinod Ranchhodbhai Amin with California-based Matchpoint GPS Inc. as an investor in the company.

A former employee of Trackpoint told Mint on condition of anonymity that the company’s sales executives were told to meet HDFC Bank officials frequently and reach sales targets for these devices. The person also said, “It was like a tie-up where the bank provided loan customers to us and we provided the devices.”

Amar Amin, founder and Chief Executive, Matchpoint GPS said, “We have had a formal tie-up with HDFC Bank to offer this crucial service to their auto loan customers but only as an opt-in model. At no point were we engaging with customers who did not need or want our service.”

What do Experts Think?

Some believe banks could be entitled to promote such a device as an enhanced security measure. This is done by the lenders to deal with potential defaults on loans where the vehicle is the underlying security.

Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services LLP, said as the lender has part-ownership interest in the vehicle, it is within rights to track the location of the vehicle.

He said, “If the borrower is told upfront that this product is a prerequisite for the loan, there is nothing wrong. But prima facie, it appears this product was being pushed by a few officials of the bank without complete knowledge of top management.”

The question still remains, is it safe to hand your privacy to ensure oversight of an asset to your lender? 

What do you think about forcing the borrowers to buy a product along with a loan?

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