BRANDED DACOITS

 

 

This is one of the less remembered stories of the Rajiv Gandhi era. The Union Finance Minister is V.P. Singh, who even then had a fetish for projecting himself as Mr. Clean. In quick succession, two of the most respected industrialists of the country, S.L. Kirloskar of Kirloskar Brothers and Lalit Mohan Thapar of the Thapar group are arrested and sent behind bars. Their crime? Authorities have branded them as criminals for violating the notorious FERA (Foreign Exchange Regulation Act) that dictated how much foreign currency an Indian citizen could carry.

Many Indians applaud V.P. Singh for not sparing the high and mighty if they broke the law. Many crypto-socialists secretly rejoice at the humiliation heaped upon ‘rich’ businessmen. But there are many who take a sober look at the law and wonder at the perversion of it all. According to FERA, even industrialists travelling overseas cannot carry more than $500 because that is the limit imposed. No wonder, this law gave birth to a gargantuan industry called hawala and made a criminal out of virtually every businessman travelling overseas.

There is yet another apocryphal story of the absurdity of some Indian laws (and the even more absurd manner in which they are implemented). In 2004, there is a scandal involving a pornographic MMS that is posted by an IIT Kharagpur student on the portal Baazee.com(now e-Bay.com). Avnish Bajaj, an Indian born American citizen, is the CEO of Baazee and flies down to Delhi voluntarily to assist the police investigating the case. Bajaj is arrested and branded a criminal for ‘aiding and abetting’ the sale of pornography.

Will it be time now for the legendary CEO of ICICI Bank, K.V. Kamath, to face similar music? The Nagpur police have recently filed an FIR against Kamath and many other bank officials on charges of ‘dacoity’. Yes, the alleged crime is dacoity. The story is that recovery agents of the bank forcibly repossessed a car from a certain Praveen Deshmukh who had taken a Rs1.4 lakh loan to buy a second hand Ford Ikon. While the bank claims that Deshmukh defaulted on loan payments, Deshmukh alleges that he voluntarily went to repay his loan and was rebuffed by bank officials. The dacoity charges have been slapped against Kamath because Deshmukh further alleges that Rs 25,000 lying in the car too was forcibly taken away.

This is just one of the numerous instances where ICICI Bank, and many other commercial banks have been embroiled in controversies. Just two recent cases will highlight how serious the issue has become and how urgent is the need to take another look at the law governing consumer loans. In March 2007, the Delhi High Court issued notices to Delhi Police for the suicide committed by Himanshu who was allegedly harassed by recovery agents of ICICI Bank after failing to pay installments on the Rs 37,000 loan he had taken to purchase a motorcycle. Himanshu’s mother approached the Delhi High Court after he committed suicide.

The Allahabad High Court has ordered the registration of charges against Kamath and other officials of ICICI Bank for the same reason. In the same case, a Bench of the Supreme Court came down heavily on commercial banks for employing ‘goondas’ to forcibly recover cars and motorcycles when borrowers defaulted on loans.

On the face of it, people like Kamath and his peers like Naina Lal Kidwai of HSBC and Aditya Puri of HDFC Bank do seem responsible in some way for the deeply unpleasant things that are happening in this arena. It is also easy to target them as they are high profile. Says a senior ICICI official who doesn’t want to be named for obvious reasons, “Every time a defaulter complains about the bad behaviour of recovery agents, some courts promptly ask the police to file a criminal case against Mr. Kamath as if he spends his day ordering goondas around the country. If you take a similar approach, why can’t criminal cases be filed against Home Ministers of States when there are allegations of police brutality. Isn’t the Home Minister the CEO of the police forces?”

According to well known lawyer Mukul Rohtagi, who has represented ICICI Bank in some of these cases, banks will never be able to recover their dues if they go through the ‘due process of law’. Let’s take the case of a car loan default where a commercial bank approaches civil courts for legal remedy. Given the current state of the Indian legal system, it could be about 15 years by the time the case is decided and even if a bank gets possession of the car, it will be a meaningless gesture. Lawyers like Rohtagi argue that rather than lambasting high profile personalities like Kamath, a practical and workable way needs to be evolved.

But not many are hopeful of the Indian legal system offering a solution to this crisis. They point out one of the most embarrassing scandals of corporate India and the Indian financial system to justify their pessimism. Hundreds of Indian companies have defaulted on loans taken from financial institutions like IDBI, IFCI, State financial corporations and commercial banks during the 1970s, 80s and 90s. In many cases, the defaults have been deliberate. The total amount, though never accurately estimated, is far more than Rs 1 lakh crore. In 2002, a new law was passed to help banks attach, seize and auction the assets of these chronic defaulters. Yet, in almost all cases, when banks have tried to use the new law to recover their loans, various courts have stayed the proceedings and granted relief to the defaulters. Since these corporate defaulters have money, power influence and access, they have managed to ‘work’ the system and the legal process to get away. Individual borrowers are now bearing the brunt because they don’t have access to powers that be, nor can they manipulate the system to their advantage.

Another lawyer Mukesh Karnik points out how this controversy is somewhat similar to the ones generated by India’s Rent Control laws. Under that law, there were tenants living in posh localities of Mumbai and paying a monthly rent of just a few hundred rupees a month. Even if a landlord filed eviction cases against tenants, the matter would drag on for decades and the courts would often rule in favour of the tenant because that is what the law stated. Many such landlords abandoned their buildings (you can see the number of decaying and crumbling buildings in Mumbai as testimony to this). Many others approached the ‘eviction mafia’ who specialised in sending goons to threaten and terrorise tenants into vacating the premises. This was also the genesis of the infamous link between land and the Mumbai mafia. Of course, those with power and influence flourished under this law while the individual who could not manipulate the system was the victim. Something similar is happening with loan recovery in India. Yet, there is no doubt that there will be an unprecedented crisis if the issue of loan defaults is not taken seriously and a solution found. Well-known lawyer Mehul Gandhi of Ahmedabad reckons that loan defaults in the Indian banking system could be as high as Rs 90,000 crore.

Just look at the facts. According to data released by the Reserve Bank of India, the rate of growth of housing loans in 2005-6 was an astounding 157%, real estate loans grew by 143% and personal loans grew at a rate of 103% in the same period. The accumulated loans under these categories amounted to a mind blowing Rs 2,200 billion! Even a 10% default on this would amount to Rs 220 billion. Clearly, banks cannot afford to take a hit like that.

There is more trouble in store for both borrowers and banks. Thanks to the repeated hikes in interest rates by the RBI to fight inflation, many middle class Indians now find that they might no longer be in a position to repay their loans. Take the hypothetical case of an executive earning Rs 50,000 a month who has taken both a housing loan and a car loan a year ago to finance his middle class dreams. Banks go by a thumb rule that a borrower’s monthly instalments should not exceed 50% of monthly earnings. Accordingly, the executive was paying an Equated Monthly Installment (EMI) of Rs 20,000 a month on his housing loan and about Rs 5,000 on his car loan. But that was when the interest rate on the housing loan was 7.25%. Today, the interest rate on the same housing loan is 12% and the EMI has gone up to about Rs 28,000. The math is clear. Now, more than 65% of the executive’s earnings will go to service his loans. It is crystal clear that the executive is staring at a debt trap. And banks are worried because there are hundreds of thousands of borrowers in India who will be confronting similar debt traps. So what will Indian courts do when officials of commercial banks start attaching houses of middle class Indians who fail to repay their loans? It may sound nasty, but there is little doubt that many of these defaulters will commit suicide. Would the courts then direct the police to file more cases against Kamath, Aditya Puri and Naina Lal Kidwai? Of course, there can be no denying that the manner in which the goons behave in many such ‘recovery’ cases is downright scandalous and criminal, though many of these recovery agents claim that they target only wilful defaulters who deliberately fail to repay loans (see box). There is also no denying that retail banking is one of the worst offenders when it comes to taking a cavalier attitude towards the rights of customers. Despite courts imposing hefty fines and despite repeated warnings, agents of these banks brazenly violate the privacy of individuals by making unsolicited calls to peddle new products and instruments. But then, those are not just commercial banks that treat the Indian consumer so badly. Mobile phone companies, travel agents, airlines . . . most service oriented companies in India don’t even pay lip service to the word service (see box).

The stark reality is, the recovery agent is not going to go away; no matter how much we argue about the morality and ethics of these ‘goons’ Another stark reality is the silence surrounding the manner in which cooperative banks and other institutions have been hounding farmers who have defaulted on their loans. Since they are not middle class Indians with access to the media, their horror stories go unreported. The sad reality is, there will be perverse outcomes as long as there are perverse laws and a perverted legal system. FIRST PERSON ACCOUNT OF A RECOVERY AGENT: WE ARE NOT GOONDAS



I am not a goonda. I am a professional recovery agent although I am not on the payroll of a company. Banks and companies don’t recognise recovery agents legally, but they pay me remuneration and bribe the police when I’m caught. I have formed a group of five boys. All the boys have a well built physique which can electrify others at the first look. And we have shed a whole lot of sweat for this. We have been trained for loan recovery. Companies have taught us the technical part and we have learnt the field work from predecessors. Actually, I worked as a boy in a group before forming my own group. There, I learnt the rules of the game.

We have a proper office. Companies gives us the name and other details of a defaulter. We make inquiries on our own. Then we call the person feigning as a policeman or a lawyer. The mention of the police is sufficient to upset him. Most of the times this phone call settles the matter. But when it does not, we know how to take the money back. Then we use every option available. We don’t mind torturing him mentally or physically. If somebody has this notion that we torture innocents, then they must correct themselves. No honest human being wants to be a defaulter. All of them are real imposters and cheats. We get Rs 15,000 to Rs 20,000 for a normal recovery. It may increase depending on the amount of recovery. Our commission is negotiable. Our group earns between Rs 1 and Rs 1.5 lakh a month. CONSUMER RIGHTS? YOU MUST BE CRAZY!



Almost all readers of The Sunday Indian would have been victims of exasperating, disturbing and infuriating calls from strangers with high pitched voices selling loans, holidays, downloads and what not. That these calls have not stopped even after explicit orders of the Supreme Court speaks volumes about the state of consumer rights in India. The shocking fact is, despite fierce competition, most companies end up putting the consumer last in their set of priorities.

Banks virtually force you to take “free” credit cards and then charge exorbitant fees and fines after issuing them – often without the knowledge of the card holder. Insurance companies never bother to point out the fine print that might deny your legitimate claim. Airline companies blithely cancel flights and leave stranded passengers to their fate. Mobile phone companies leave stone unturned to harass subscribers. Real estate companies routinely peddle dream houses that turn out to be nightmares. Electricity supply companies often send bills that would give heart attacks even to healthy people. Needless to say, have you tried changing a faulty air-conditioner, TV, car or anything else that you bought?

Even after 20-plus years of consumer protection laws and the presence of consumer courts across India, the Indian consumer continues to be neglected, cheated and hoodwinked with a vengeance. It would be futile for the Indian consumer to wait for the State or for a dysfunctional legal system to help. The only way to force companies to respect consumer rights is to develop consumer activism of the type prevalent in the US that forced arrogant companies to pay heed.