Legal Question in Banking Law in India

I had applied for a personal loan of 1,50,000 INR from HDFC Bank in the month of Feb, 2010. The Bank, rep. took attested photocopies of all necessary documents while filling up the application form. He also informed me that I'll have to pay certain % of the loan amt. towards an insurance policy so that incase of any contingencies, the policy will repay back the loan. He also took sign offs on another form which stated that I CANNOT USE THE LOAN AMOUNT FOR ANY KIND OF INVESTMENTS IN THE STOCK MARKETS. However, the application was rejected as there were some disputes in the documentation.

I again applied for the same loan in the month of March, 2010 in the same bank. Self attested photocopies of all necessary documents were once again taken from me but this time I was not asked to pay towards an insurance policy. Also, this time I was not asked/informed, not to use the money in any kind of investments in the stock markets& no sign offs were taken in any relevant forms. The loan was approved & disbursed.

My Questions are: 1) Is there any such rule/law/act, which refrains a person to use the amount of a personal loan towards investing in the stock markets, although the person is paying of the EMI's properly?

2) If anyone does so(Invests the loan amount in the Stock Markets), what can be the consequences or what role/action can the bank play/take in such a situation?


Asked on 4/14/10, 2:59 am

1 Answer from Attorneys
J. Radhakrishnan independent Practice

In taking the personal loan, you have not been informed by the Bank not to invest the same in stock market. If you have mentioned the purpose of the loan as something other than investment in stock market, the Bank can recall the loan if the purpose for which the loan is used is other than for which the loan was taken, notwithstanding your paying the EMIs regularly.

The above also answers your second question. Please read the fine print in the loan documentation, which may contain a clause that the loan will be utilised only for the purpose for which it is taken.

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Answered on 4/16/10, 4:39 am


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