SBI Ordered to Pay Rs.8 Lakh to Retired Air Force Officer Over Shadow Loan Account

Hyderabad: The Telangana State Consumer Disputes Redressal Commission (TSCDRC) has directed the State Bank of India (SBI) to pay ₹8 lakh in compensation to retired Indian Air Force officer, Wing Commander Yella Prakash Rao. The ruling came after SBI’s actions negatively impacted his credit score following a fraudulent debit card transaction. The commission also ordered the bank to pay ₹50,000 for legal expenses.

How the Issue Started

In 2014, Wing Commander Rao was in Mumbai when he noticed fraudulent transactions on his SBI debit card. Someone had used his card in Canada, spending ₹1,85,658.19 without his knowledge. He immediately reported the fraud to SBI’s Alwal branch and requested a refund.

At first, the bank refused to return the money. However, after repeated complaints, they finally refunded the amount. But instead of simply crediting the money back into his account, SBI created what is called a “shadow loan account.”

What is a Shadow Loan Account?

A shadow loan account is an unofficial account linked to a customer’s financial records, but it functions like a loan, even though the customer never actually borrowed money.

Why Did SBI Do This?

SBI later explained that it was a precautionary measure. The bank claimed that if the police recovered the fraudulently withdrawn amount, Rao would have to return the refunded money. They also stated that the branch manager had taken an agreement from him regarding this. However, the Consumer Commission found no proof that such an agreement existed.

How This Affected Wing Commander Rao

This shadow loan account caused several financial problems for him:

1. His CIBIL score dropped, making it harder to apply for loans or credit cards.
2. His credit card applications were rejected because banks saw him as a risky borrower.
3. He was unable to secure an education loan for his son, adding to his difficulties.
4. Despite multiple requests, SBI refused to close the shadow loan account, making the situation worse.

Consumer Commission’s Verdict

After hearing the case, the Consumer Commission ruled in favor of Wing Commander Rao and criticized SBI for its actions.

• The commission stated that SBI’s actions were “unethical and careless.”
• It found no proof that Rao had agreed to the shadow loan account.
• The financial and mental distress caused to him was unacceptable.

Final Order

SBI has been ordered to:

• Pay ₹8 lakh as compensation.
• Pay ₹50,000 for legal expenses.

The commission also noted that no amount of money could fully compensate for the stress and financial hardship Rao faced due to SBI’s negligence.

Why This Case Matters

This case serves as a lesson for both banks and customers. Banks must handle fraud cases responsibly without harming innocent customers. At the same time, customers should regularly check their credit scores and challenge unfair banking practices to protect their financial reputation.