Banks seek common insurance repository, shared customer data access to curb policy-backed loan fraud (2025)

New Delhi: Banks have pitched for creation of a common insurance repository and shared access to key customer data to help curb fraud in loans backed by life insurance policies.

The suggestion was made to the government earlier this month after discussions centered on strengthening KYC norms and enhancing fraud prevention mechanisms, according to two executives aware of the developments.

"Banks have said that there has been an increase in cases where fake surrender value certificates were provided, and on that basis, a higher loan amount was availed," said a government official.

The issue will be taken up with the insurance sector regulator, the Insurance Regulatory and Development Authority of India (IRDAI), said the official.

"It will be discussed as to how this can be operationalised, and under which regulator," said the official, who declined to be named.

Under existing regulations, a customer can take a loan against an endowment policy, a money-back plan or whole life policies. Lenders offer up to 80-90% of the surrender value pledged. Last year, IRDAI made policy loans mandatory for all life insurance savings products, allowing policyholders to access liquidity when needed.

A senior bank executive said that lenders have also reported cases where fraudsters used policies on which loans were already taken or assigned to other parties.

"We have recommended a common insurance repository which will enable verification of policy details such as surrender values and assignment," said the banker, adding that lenders should have access to such data.

At present there are four insurance repositories in India. Earlier this year, CAMS Insurance Repository said that there has been a 'decisive shift' towards digital insurance, with more than 90% of the insurers now issuing policies in the electronic mode, and it serviced one crore e-policies.

Last month, Centrico Insurance Repository, a subsidiary of Central Depository Services Limited (CDSL), signed an agreement with the Life Insurance Corporation of India (LIC) to provide digital insurance repository services.

Another bank executive said that there has been an increase in numbers of individuals taking loans against insurance policy as the interest rates are low as compared to personal loans.

"Since there is a collateral the interest rates are around 9-10% as compared with 15% and above on personal loans," he said.

Earlier this month, financial services secretary M Nagaraju held a meeting with key stakeholders, including financial institutions and regulators, on the modernisation of the Central KYC Records Registry (CKYCR) and the streamlining of the KYC process.

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