Shailendra
Pandey |
| |
A total of over 30
million Indians are debtors of one kind or another, with over
three million credit card defaulters |
Dronacharya Bose,
a former banker, has an interesting insight on the growing tensions
between banks and those defaulting on payments, especially in the light
of a recent incident in Hyderabad where A. Yadaiah, a state government
electrician, died of heart attack after being allegedly hounded by recovery
agents hired by ICICI Bank. Bose feels that the crisis will continue
unabated and that there will be routine stories of what many claim to
be the high-handedness of agents hired by banks to recover loans because
India just does not have the guidelines to regulate the recovery process.
“Banks do not invest properly in the recovery mechanism and such
services are mostly outsourced. The lure of high commissions on high
stakes force the companies to go overboard in their recoveries,”
says Bose, adding: “There are times when the agents just fail
to draw the line.” The million-dollar question is: who can draw
the line in India?
In 2004, a negative
list of approximately six-and-a-half lakh defaulters was identified
and registered by the India Cooperation Committee comprising MasterCard
credit card issuers in India. Two years later, the number compiled by
India’s first credit bureau showed a ten-time increase. For the
record, Indians grossed a $7-billion spend for credit cards and $1.6
billion through debit cards in 2006-7. In the last decade, credit card
holders in India have paid a whopping Rs 6,000 crore as extra charges
to banks. These extra charges — imposed on credit card users in
India who pay the highest rates of interest in the world, come in the
form of penalty for late payments and for exceeding the credit limit,
as well as fees for services like cash advance, cash withdrawal and
cheque pick-up, besides the service tax on all these fees.
Obviously credit
is big. And growing. As banks remain in a year-long frenzy to offer
services that range from credit cards, personal loans, home loans, car
loans and instant cash loans, the pressures of recovery increase manifold.
Prabhakar, deputy
commissioner of police (economic offences wing) of Delhi Police feels
that the role of the law is minimal because police intervention can
only happen in the case of forgeries. “In most of these cases,
there is a violation of the contractual agreement between the bank and
the client. Worse, you cannot generalise all cases. There need to be
more guidelines for the banks as well as the defaulters,” he told
Tehelka.
TOUGH
DEAL |
|
Indians
pay the world’s highest interest rate of up to 40 percent
per annum on credit cards |
Independent
studies show direct sales agents (DSA) routinely violating collection
norms stipulated by banks. dsas work on 20-30 percent margins
of recovery money |
Recovery
agents are often school or college dropouts recruited by DSAs.
Except in big cases, bank officials rarely accompany recovery
agents on their collection drive |
Various
courts and Monopolies and the Restrictive Trade Practices Commission
have often hauled up banks for violating RBI recovery rules |
According to official
estimates, 15 percent of the 22 million credit card users in India default
on their payments whereas the figure for defaults in home loans, car
loans and personal loans hover between 7-8 percent. In fact, a total
of 30-35 million Indians are debtors of one kind or another.
The banks, expectedly,
defend their case. “There is a robust and transparent asset-recovery
mandate that educates consumers of the necessity of settling loans in
cases of default. When an incident happens — whether because of
the fault of the bank or otherwise — many vested interests, even
from outside the family, begin to play a role. We identify high-risk
professions or individuals and non-serviceable areas. Apart from this,
every application undergoes security verification and is also compared
against commonly shared data before an approval decision is taken,”
says a spokesperson for ICICI Bank, which drew flak from a Hyderabad
city court over the recent incident. The bank has, since then, paid
Rs 15 lakh in compensation to the family of the deceased. But tensions
refuse to die.
Months ago, the
Supreme Court ordered banks not to use strong-arm tactics to recover
money from defaulters. “The public outcry is obvious. Recovery
agents are hardly the educated types. And the money in this case was
a paltry Rs 15,000,” says Bose. Recently, CLN Murthy, a scientist
with the Hyderabad-based Indian Institute of Chemical Technology, was
tortured by recovery agents of ICICI Bank after he defaulted on his
Rs 10-lakh loan.“They humiliated me no end. They ripped my shirt,
shaved my moustache, cut my hair and gave electric shocks on my chest
and even spat on my face,’’ adds Murthy.
Independent analysts
feel the onus lies squarely on the bank. “While people need to
understand the importance of paying loans on time, there needs to be
a regulatory mechanism which scans these direct sales agents and checks
their activities. They are sugary sweet while offering the services
but rude when someone defaults,” says BN Manjunath, president,
Credit Cards Holders Association, adding: “The agents cross the
line when they realise they can rake in as much as 30 percent of the
loan amount as fee for recovery.”
Perhaps it is time
for some more stringent guidelines on loan recovery from the Reserve
Bank of India.
