It hurts when an Indian bank loan
goes bad By Raja M
MUMBAI - "They ripped my shirt, shaved my
moustache, cut my hair and gave electric shocks on
my chest and even spat on my face." CLN Murthy, a
scientist with the Hyderabad-based Indian
Institute of Chemical Technology, described how
debt recovery agents tortured him after he
defaulted on a US$25,000 loan from ICICI, India's
second-largest bank, with $79 billion in assets.
Such experiences are unfolding in India's
tragic version of a looming subprime crisis.
Multinational banks and their outsourced
loan
recovery agents are presently running for cover,
following public outrage and dire warnings from
law-enforcement agencies, consumer courts and the
Reserve Bank of India.
In October, the
country's apex Supreme Court scolded banks and
financial agencies for hiring goons to recover
loans, and declared that banks would be held
responsible for the actions of their recovery
agents.
Screaming news headlines in recent
weeks have whipped up horror after a spate of
suicides across the country following humiliating
harassment from loan recovery agents of
multinational banks, including physical assault,
rape and sometimes even beating up folks who
didn't take a loan, let alone default on it.
Fed up and goaded by angry consumer rights
activists, the Delhi Consumer Commission slapped a
$139,000 fine on ICICI bank on Monday after its
outsourced recovery agents assaulted Delhi
resident Vinod Kumar with iron rods. Kumar was a
friend of a car loan taker named Tapan Bose, and
happened to be standing near the $11,000 car
outside a New Delhi club in January. Kumar had to
be hospitalized after the assault.
Calling
loan recovery agents "goons, boors, brutal louts
and yahoos", the consumer commission's president,
Justice J D Kapoor, fumed: "No civilized society
governed by the rule of law can brook such kind of
conduct." He tore into banks for the "audacity and
impunity" with which they have gone about
violently recovering loans.
In a
conversation with Asia Times Online, Charudatta
Deshpande, head of corporate communications,
ICICI, surprisingly offered no unconditional
regret about the bloody assault in Delhi, but
instead accused debtor Bose of demanding $114,000
for an out-of-court settlement after the violent
incident. He said the ICICI had terminated the
services of the collection agency after the
incident. Deshpande blamed the media for
"distorting the picture" and dismissed incidents
of harassment inflicted on the bank's customers
across the country as "aberrations", with the
market-dominant bank "having to make 8 million
loan recovery calls a month". So a few lives lost
here and there are merely a banking industry
version of the sickening "collateral damage"
euphemism.
Deshpande even claimed he was
unaware of the torture of Hyderabad scientist
Murthy, a case reported prominently in the Mumbai
newspaper Daily News and Analysis (DNA) on
November 2. DNA said that Murthy came to an
out-of-court settlement with ICICI.
"We
follow a standard and robust process for
appointing recovery agencies," Mythili Rao of
ICICI informed Asia Times Online. "Their
background is thoroughly checked."
This
"robust process" cost the life of 38-year-old
Prakash Sarvankar in Mumbai, who killed himself
and blamed ICICI recovery agents in his suicide
note. The bank paid $39,000 as compensation to the
victim's family, packaged as fixed deposit and
insurance covers.
Deven Bharti, joint
commissioner (detection) of the Mumbai Police
Crime branch, confirmed to Asia Times Online that
it's only the middle-class small loan takers who
are subjected to savage loan recovery methods from
multinational banks, not big defaulters of
million-dollar loans who hide behind the
impersonal corporate face.
"We have warned
banks to stay within the parameters of the law and
the guidelines we have laid down for loan
recovery," Bharti glowered, "or we will take
action against them."
In September, the
anti-extortion cell of the Mumbai Crime Branch
arrested Umesh Shetty, the Housing Development
Finance Corporation (HDFC) bank manager (loans),
in the Dadar branch and two recovery agents of the
Sai Siddhi Credit Service in suburban Andheri,
booked them on charges of extortion, outraging the
modesty of a woman, and criminal intimidation. The
trio were remanded in police custody for five
days, the first instance of police booking a bank
official along with its abusive recovery agents.
According to police in the south Indian
city of Hyderabad, nine people, including a woman,
have committed suicide in the state of Andhra
Pradesh following harassment and humiliation by
bank loan recovery agents.
A senior police
official told local media that 32 cases of loan
harassment have been booked in Hyderabad in 2007
and about 100 cases are pending with the economic
offenses wing of the Criminal Investigation
Department.
Creating their own subprime
crisis, banks such as ICICI, HDFC and other
finance agencies currently face an estimated loan
exposure of about $11.4 billion, with loan amounts
per borrower averaging $254.
"Flush with
funds, these banks chase the people most in need
of money - the poorer sections - and offer them
loans at high interest rates," Kishori Udeshi,
chairperson of the Mumbai-based governmental
watchdog, Banking Codes and Standards Board of
India, told Asia Times Online.
Udeshi, a
former deputy governor of the Reserve Bank of
India, with over 35 years of experience in central
banking, called this loan baiting "predatory
lending".
Other senior finance experts
have also lashed out at banks for "irresponsible"
lending, creating a situation in which people are
harassed both after taking a loan and before it.
The harassment starts with unsolicited
telemarketing. Phone calls offering loans have
become as much of a nuisance as persistent spam
offering to lengthen a certain critical part of
the male anatomy.
On Sunday, the New
Delhi-based Hindustan Times front-paged a report
of harassment from banks offering loans, despite
cellphone subscribers signing on to the new
nationwide "Do Not Call" registry against
unsolicited telemarketing.
Vir Sanghvi,
former editor of the Hindustan Times and a popular
columnist, threatened to publish mobile phone
numbers of senior executives of offending banks
and urged telemarketing victims among the 6
million Hindustan Times readers to blanket call
bank executives with a vengeance.
Mumbai
resident Ralph Pais found a more
non-confrontational solution. He politely inquires
from telemarketers if he has to repay the loans
offered. To the surprised "yes, sir", he responds
with, "Then I'm not interested." He says he is
left alone after that.
Financially
vulnerable families succumb to these loan offers
and defaulting on an installment or two could
bring their worst nightmares ringing the door
bell.
A leading Indian business channel,
CNBC-TV18, aired in September what it called "a
shocking account of how terrorizing consumers into
paying up their dues is a thriving business".
With a spy camera, a CNBC reporter went
undercover in a loan recovery agency for an
unnamed multinational bank. He found the owner
casually starting an interview with a prospective
recovery agent by probing his expertise in beating
up people. The interview continued pleasantly
along such lines with the owner telling the
candidate, "I hope you have abused a lot of
people."
Banks complain that their
recovery agents sometimes also get beaten up when
calling to collect dues and banking circles have
closed ranks in the backlash of widespread bad
publicity. They say "activism" against loan
recovery will inspire willful defaulters and
damage the bank lending system.
Bankers
seem to collectively forget that at issue is not
the obvious need to recover loans, but the
criminal, insensitive, inhuman manner in which
they have set about doing it.
Naina Lal
Kidwai, group general manager and chief executive
officer of HSBC, India, offered the view that if
banks stopped lending to low income groups, then
the clients would have to return to money lenders
who charge usurious rates of interest.
Traditional Indian moneylenders have a
reputation for ruthless exploitation, but as yet
they have not been linked to a spate of suicides
or using electric shocks, iron rods and abusing
women to recover loans. Nor do traditional Indian
money lenders harass the working public all day
with unsolicited loan offers.
HSBC invited
a questionnaire from Asia Times Online, but as of
the time of writing it had not responded to a
query asking if HSBC had a uniform loan recovery
process, or whether it varied across income
groups.
(Copyright 2007 Asia Times Online
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