Sunday
afternoons are always busy for the Islanders of Kumbalam. That is the day for
their investment in Chitties or Kurries and to take part in the auction for
prize money. The local Chitty or Kurry is a transaction by or under which a
person orally enters into an agreement with specified number of persons that
every one of them shall subscribe a certain sum of money by way of periodical
installments over a definite period and that each subscriber shall, in his
turn, as determined by lots or by auction or by tender or in such other manner
as per local customs, traditions and practices, be entitled to the prize money.
Most of such Kurries are running smoothly. I have noticed that sometimes a few
dishonest persons who joined such Kurries would try their best to get the
auction and would collect the prize money at the earliest. After collecting the
prize money without furnishing any security or guarantee, they would default
and neglect to pay the future installments. In most of the cases, the foreman
of the Kurry too might not have financial stability and he too would abscond at
the detriment of those who have not auctioned or collected the prize money.
Many of such cheated subscribers are not aware that they ought not to have
joined in an illegal and unregistered Kurry or Chitty transaction and their
grievances, if any, are not redressable through a court of law. It is the
primary duty of the government to make the rural population aware that they are
conducting legally enforceable chitties through government agencies like Kerala
Financial Corporation and Kerala State Financial Enterprises and direct the
institutions to give the prize money on reasonable guarantee to help the common
man.
Rural
poor had no choice but to keep their small funds at home or on their persons. Postal Savings System was introduced to provide
depositors who do not have access to city banks as a safe and convenient method
to save money. This promoted the saving habit among the poor. The postal
savings system was introduced in Kumbalam in 1970s which encouraged the common
man to save for a rainy day. In 1973, a branch of a scheduled bank namely the
Federal Bank Limited was opened at Panangad in Kumbalam. I still remember their
Branch Manager, Shri. Augustine Mannassery (Thuravur,) who used to visit my
father to canvass deposits for their bank. Subsequently, the South Indian Bank
Limited established a branch at Kumbalam in the year 1979. In 2011, the State
Bank of India too opened a branch at Panangad in Kumbalam Village. The present
location of the Kumbalam Branch of State Bank of India at Panangad is inconvenient
to the Islanders. In order to cater to the needs of all the four Islanders of
Kumbalam Village, this Branch should be shifted to a more suitable place at
Matavana Junction, facing the National
Highway-47.
The financial crisis of 2007-08 caused many banks to crash, including
some of the world's largest banks, and provoked much debate about banking
regulations.
It is significant to know the theory
behind charging interest. “Interest” is compensation paid by the borrower to
the lender for deprivation of the use of his money (Riches Vs Westminister Bank [1947] Appeal Cases 390.) “Compound
Interest” is interest upon interest; where accrued interest is added on to the
principal sum and the whole is treated as a new principal for the calculation
of the interest for the next period. “A child is dear to his father, and a
grand-child is dearer than the child,” is the hypothesis behind interest and
compound-interest. Food money in
the shape of olives, dates, seeds or animals was lent out as early as 5000 B.C.
Among the Mesopotamians, Hitites, Phoenicians, and Egyptians, interest was
legal and often fixed by the state. Divine Torah and later sections of the Hebrew Bible criticize interest-taking from
close relations, but interpretations of the Biblical prohibition vary. One
common understanding is that Jews are forbidden to charge interest upon loans
made to other Jews, but obliged to charge interest on transactions with
non-Jews, or Gentiles. However, the Hebrew Bible itself gives numerous examples
where this provision was evaded. The Bible reads, “Christ drives the Usurers
out of the Temple.” Israelites
were forbidden to charge interest on loans made to other Israelites, but
allowed to charge interest on transactions with non-Israelites. Originally, the
charging of interest known as usury was
banned by Christian churches meaning the charging of interest at any rate was
banned. However over time the charging of interest became acceptable, the term
came to be used for interest above the rate allowed by law. In Islam it is
strictly prohibited to take interest; the sacred
Koran strictly prohibits lending money on interest. “O, you who have believed, do not consume
usury, doubled and multiplied, but fear Allah that you may be successful”
(3:130) and “Allah has permitted trade
and has forbidden interest” (2:275.) In order to avoid the aforesaid
prohibition and to avail an increase in capital with no services provided, they
adopted other means. It was achieved by charging for loans in various other
ways like fees for services rendered, risk sharing or insurance, and different
ownership models such as rent out and
leasing. I am of the opinion, “Whatever be the nomenclature, money that
accrued on capital is interest.”
There are unregistered private money lenders at Kumbalam, who provide
usury loans and harass their customers. For example, if one needs a loan of
1,00,000 rupees, an amount of 10,000 rupees would first be deducted as advance
repayment from the loan amount. Subsequently, the amount of 1,00,000 rupees would
have to be repaid with monthly rests of 5% p.m which ultimately amounts to more
than 60% p.a. Apart from promissory notes, blank cheques the borrower should
handover his original title deeds and other documents relating to his immovable
assets to the money lender. Very often an agreement for sale of the property
too is executed for a price the money lender dictates. Authorities who are
bound to challenge such wrong-doers often change sides to harass the poor
debtor. One comes across a few Tamilian money lenders on the village roads
advancing small usury loans. The government has to be vigilant and take
stringent action against such persons looting the public at large. I have
noticed fish vendors who take a usury loan of 1000 rupees. They will get only nine
hundred rupees in hand. They buy fish and sell it in retail and make 2000
rupees or more and return thousand rupees to his lender the same day by
evening. Here also the common man bears the brunt of the lender.
Do
plastic credit cards change the attitude of the younger generation? The answer
to this question is quite obvious. They spend more, save less and take plenty
of loans. I was astounded when one of my clients, Shri. V.R. Desai, founder and
managing director of Desai group of companies, told me that both corporate and
nationalized banks provide usury loans through which they harass and intimidate
their customers. These banks engage aggressive recovery agents on commission to
carry out their collection. They hire musclemen aka goondas to collect usury
interest from customers. Shri. V.R. Desai is an entrepreneur with varied
businesses. He is a whole sale dealer in paper, oil, and a real estate
developer, specializing in building multi-storied commercial buildings and
residential apartments. I was taken aback when he narrated the heartrending
tale of one of his employees, Mr.X. He told me, “Mr. X had joined M/s Desai
Homes as an employee. He is an efficient worker but was always very gloomy. On
inquiry, he confided to me that he was initially working in a computer firm
where they were paying him 10,000 rupees per month. While working, he married
his class mate with whom he had been having a steady relationship. It was an
inter-caste marriage. Both their families were against the alliance. Therefore,
they were forced to live separately in a rented house. He resigned his job and
joined another company for better prospects. They offered him 15,000 rupees per
month. Their cart was moving smoothly till the recession tumbled their apple
cart. He lost his job on the principle “last come first go.” He was frantic for
a job. He moved from pillar to post, but in vain. He had nothing and no one to
fall back on; the scarcely used plastic credit cards dumped on him by the banks
finally came to his rescue. He bought provisions on credit to keep the dog off
the door. As he defaulted to pay the prohibitive interest and compound interest
rates at 70% or more with monthly rests, hefty goondas started coming
frequently to his house hurling abuses which
were aimed at causing alarm, distress and humiliation. It was very
embarrassing for him as they did this in front of the public in his residential
locality. It was at this point that I (Shri. Desai) offered him the job in his company.
Mr. X disclosed that on salary day, these hefty goondas would wait outside the
office and collect the entire pay packet. Are the banks worse than the wicked
and reviled money lenders?” he quipped. Shri. Desai decided to help him out of
this terrible situation. When asked whether he had any immovable property in
his own name or valuable furniture or other movables that can be attached, he
replied in the negative. I told him, “The banks can take legal measures against
defaulters if they want to. But the banks are not legally entitled to take law
into their own hands. Using obscene, profane and
offensive language or threatening to use violence or other criminal actions to
harm customers, their property or their reputation is illegal. In 2007,
the RBI had framed guidelines on how debt recovery agencies should approach
customers and conduct their business. The courts have passed a series of
judgements against aggressive recovery agents and consumer commissions too have
pulled up banks in the past for hiring musclemen to carry out their
collection. In the event of the bank resorting to illegal methods, the
affected party should go to court. I promised him that I will handle the
situation and advised him not to pay the salary all at one go. I collected the
phone numbers of the bank managers. The banks took my advice seriously and
restrained themselves from disturbing him.
From
my personal experience as a corporate Bank’s standing counsel, the debtors,
generally, do not collect copies of the documents they execute at the time of
availing the loans. This is because of the fiduciary relationship and the
dominance of the creditor bank. The debtor who is at the receiving end is
always weak. They don’t even read the terms and conditions of those loan
agreements, printed in tiny letters, executed by them. The banks take blank
revival letters too from the debtors acknowledging their liability in order to
use it on a future date. Many debtors do not know what compound interest is and
how it is calculated and how and when the interest becomes part of the capital
or when penal interest is charged. They are ignorant about the other hidden
charges attached to a loan account. They put their signatures wherever directed
by the bank officials. The debtors hardly contest suits or other legal
proceedings initiated by the banks. The civil courts also take the words of the
bank managers for granted and pass orders or judgments and decrees in favour of
the bank. They mistake the Bank as an entity exercising a sovereign function.
While mobilizing deposits and disbursing loans or initiating / enforcing
recovery proceedings the bank officials are not discharging any public duty of
the sovereign and therefore they are not entitled to any immunity whatsoever.
The government, the major share holder, has absolutely no control in the
management or affairs of the bank or on the appointment, payment of salaries
and other emoluments and taking disciplinary action against bank employees
including dismissal from their post. The banks even blatantly violate the
guidelines of the Reserve Bank of India with impunity. They often refuse
priority sector loans to common man. It is pertinent to note that the bank officials are not gazetted officers.
(Gazetted Officers are executive / managerial / supervisorial level ranked
public servants in India. Authority for a gazetted officer to issue an
official stamp comes from the President of India or the Governors of States. To
that effect, they are de jure
representatives and delegates of the Indian State and the President. The
Gazette of India is published on a regular basis by the Directorate of Printing
Department of Publication, Ministry of Urban Development, and Government of
India. It is an official Central
Government or State Government publication, which publishes the appointments or
promotions of certain government officials. An officer or public servant, who
is appointed under the seal of the Governor in case of a Federal State or by
the President of India at the national level (and in the Union Territories),
requires being listed in the Indian Gazette or State Government Gazette and is
considered to be a Gazetted Officer. If a person's name is published in the
Gazette, he/she is called Gazetted.)
I
have come across decisions of the High Court of Kerala and other High Courts,
(Kurian v. State of Kerala, 1982 Cri.L.J. 780 (Kerala High Court) and Republic
of India v. Khagendranath Jha, 1982 Cri.L.J. 691 of the Orissa High Court,) holding
those employees of State Bank of India and other nationalized banks are “public
servant” within the meaning of section 21, clause 12 of Indian Penal Code.” In
Kundan Lal Sharma v. State of Punjab, 1981 Cri.L.J. 1411 wherein the Branch
Manager of United Commercial Bank a Nationalised Bank was held to be a public
servant. The Supreme Court of India too had occasion to hold that the employee
of a Nationalised Bank to be a 'public servant. I would submit that the above
decisions have got a different scope and application only in criminal
proceedings. In K. Ch. Prasad Vs Smt. J.
Vanalatha Devi and Ors. AIR 1987 SC 722, while examining whether
sanction under section 197, Criminal Procedure Code is essential before
prosecuting an employee of a Nationalised Bank, the Supreme Court held that
though he is a 'public servant still on his criminal prosecution the provisions
of section 197 are not attracted.
The
explanation to Section 2 (Definitions), in the Prevention of Corruption Act,
1988 [Act No. 49 of 1988 dated 9th. September, 1988] “State” includes a
corporation established by or under a Central, Provincial or State Act, or an
authority or a body owned or controlled or aided by the Government or a
Government company as defined in section 617 of the Companies Act, 1956. (c)
“public servant” means- (i) any person in the service or pay of the Government
or remunerated by the Government by fees or commission for the performance of
any public duty; (ii) any person in the service or pay of a local authority;
(iii) any person in the service or pay of a corporation established by or under
a Central, Provincial or State Act, or an authority or a body owned or
controlled or aided by the Government or a Government company as defined in
section 617 of the Companies Act, 1956. Similarly, Section 21, in the Indian Penal Code, “Every person who holds any
office by virtue of which he is empowered to prepare, publish, maintain or
revise an electoral roll or to conduct an election or part of an election; in
the service or pay of a local authority, a corporation established by or under
a Central, Provincial or State Act or a Government company as defined in
section 617 of the Companies Act, 1956 (1 of 1956.) In the Indian Penal Code,
section 409 (Criminal breach of trust by public
servant, or by banker); section
376 (Punishment for rape. being a public servant, takes advantage of his
official position and commits rape on a woman in his custody as such public
servant or in the custody of a public servant subordinate to him; section 173
(Preventing service of summons or other proceeding, or preventing publication
thereof); section 190 (Threat of injury to induce person to refrain from
applying for protection to public servant); section 353 (Assault or criminal
force to deter public servant from discharge of his duty) and section 200 in the Code Of Criminal Procedure,
1973. But these disadvantages and privileges will not apply to civil actions or
proceedings by the bank managers.
I recall a unique case where I appeared for the principal
debtors and others and against Dhanalakshmi Bank Limited (O.A. No. 164 / 2002
of D.R.T. Kerala.) It was a case where the bank advanced a cash credit loan of
20 Lakh rupees on 20-12-1995, which was enhanced to 35 Lakhs rupees in 1998.
The bank claimed a total sum of 1.10 crores. In another connected suit, O.S. No. 136/2002 of the Sub Court at
Kottayam, was pending for a sum below 10 Lakhs from the same
debtors and both these claims with interest, costs and charges work out to more
than 1.35 crores. I challenged the exaggerated, partial, incorrect and
incomplete certified copy of bank accounts for the period from 6-11-1999 to
4-2-2002 produced by the bank on the following among other grounds: - “The cash
credit loan is repayable only on demand. The Original Application is not
maintainable for want of valid demand or notice to all the alleged debtors and
mortgagors. It was further contended that the interest charged is in excess of
RBI guidelines; incorrect additions were made; clearing cheque return charges
were arbitrarily applied; calculation of interest was erroneous; the rate of
interest was not mentioned on ledger as per the guidelines of the Reserve Bank
of India; cheque return charges were applied at hundred rupees, which was far
above the norms in this regard; arbitrary charges were added to account
including penal interest and quarterly interest on the same; the rate of
interest applied by the bank was above the contract rate and far above the rates
fixed by the Reserve Bank of India or charged by any other banks and therefore
the certified copy of the partial account produced may be rejected / discarded
and the entire accounts maintained by the bank may be reopened. It was submitted that charging of penal
interest on the account with quarterly rests was against the decision of the
Supreme Court of India reported in AIR 2001 SC, Central Bank of India Vs
Ravindra.” The other alleged debtors (mortgagors), contended, “The
original debtor, father of defendants, expired on 6-11-1972 and he died
intestate. His properties devolved on his 12 children as per the provisions of
the Indian Succession Act. Two brothers colluded and executed a partition deed
and one of them obtained the cash credit loan by depositing that fraudulent
partition deed as collateral security. He in collusion with the branch manager
and their counsel fraudulently created affidavits relinquishing the rights of
other sharers in the mortgaged properties. In the absence of registered relinquishment
deeds; those affidavits have no value in the eye of law. The original debtor is
no more and hence legal representatives of the deceased brother alone are
liable for the loan transaction. The other sharers of the mortgaged property
were aliens to the loan transaction mentioned in the Original Application and
it is against law to proceed when the disputes relating to the suit and
objections were pending decision of the Sub Court at Kottayam and Debt Recovery
Tribunal, Kerala respectively. They are neither principal debtors nor
guarantors nor mortgagors under the alleged loan transaction with the
bank. But the bank filed a false and
frivolous claim before Debt Recovery Tribunal (DRT) Kerala. Another civil suit
for partition of property was pending before Sub Court at Kottayam in respect
of properties allegedly mortgaged to the bank. While the matter was pending before the Debt Recovery Tribunal at
Ernakulam, the Dhanalakshmi Bank capriciously and daringly issued a notice, threatening
attachment and dispossession from the ancestral residential house of the
strangers who are the common owners, under the new enactment, the SARFAESI
ACT (the Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest Act 2002) and forthwith
attached the alleged mortgaged properties of strangers to the loan transaction.
The SARFAESI ACT gives such
unguided unbridled and arbitrary powers to the dominant creditor bank. The notice
for dispossession was unfair, and improper; grossly arbitrary, unreasonable,
without
jurisdiction and hence it was liable to be quashed or declared to be
illegal to proceed
against the properties of strangers to the loan transaction. Hence the High Court of
Kerala intervened and granted stay and thereafter the bank was restrained from
their attempt to dispossess the property of strangers to loan transaction as
per judgment in O.P. No. 2002 of the
High Court of Kerala. I have grave
doubts whether the SARFAESI ACT 2002
was passed hastily by the parliament without much deliberation. The Banks often
misuse such unguided unbridled and grossly arbitrary power to the detriment of
poor debtors, and a reason for rampant corruption. Hence, in my humble opinion,
the SARFAESI ACT 2002 requires reconsideration by the Parliament. Shri.
K.P. John, an erudite and sober Presiding Officer (a senior grade District
Judge,) while hearing the petitions to direct the Dhanalakshmi Bank Limited to
produce the entire accounts and also circulars of the RBI guidelines with
regard to interest applicable for the relevant period advivised the bank to
settle their claim out of court. Finally, the bank compromised the suit claim
for an astounding sum of thirty-five lakhs of rupees only and the bank accepted
it in full and final satisfaction of the claims in the Original Application and
the suit pending in Sub Court at Kottayam. Did the hierarchy of the bank
initiate action for personal accountability?
With the new
enactments, the Recovery of Debts Due to Banks and Financial Institutions Act,
1993 and the SARFAESI ACT (the Securitization
and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002) coming into force,
experienced senior grade District Judges were appointed as its Presiding
Officers of the newly constituted Debt Recovery Tribunals. The officers of the
bank who had no occasion to conduct a case in court shall not be appointed as
Presiding Officers of Debt Recovery Tribunal; their inefficiency would breed in
corruption. The execution of the orders passed by the Presiding Officers
requires competence and experience. The rights and interest of parties to the
case as well as that of third parties are often involved in the execution side;
and a judicial officer of the same caliber is indispensable to sort out and
determine the issues between the parties thereto. However, the new Acts
provided only Recovery officers, who do not know the fundamentals of Law and
Justice. Their inefficiency always breeds in corruption. I am amazed to learn
that they are hand in glove with regular bidders in auction of mortgaged
properties and they auctioned the mortgaged properties for paltry amounts, when
their palms are properly greased. The public auction should be conducted, only
after public notice especially in the main vernacular newspaper/s and it should
be conducted in open court in the presence of a senior grade District Judge to
avert such allegations. Necessary amendments have to be made in the Acts and
Rules.
I have reliably learnt that there are bank managers who
refuse loans to the common man even when the debtor points out similar loans
were disbursed by other branches of the same bank situated in another locality.
Some of them harass the debtors by asking for additional documents and better
security. Some of the bank managers take 2% commission for granting loans. Some
of the branch managers through their wife’s name dump insurance policies on
debtors and failed to continue the policies with the result the debtor lost
their claim on policies. There are bank managers who go in a tourist-taxi for
inspection to a number of business establishments of their debtors. They use
the same cab for their personal needs. They ruthlessly debit such expenses on
debtor’s loan accounts. I have come across bank officials who forge letters and
other documents to revive the bank’s claim. There are instances where the gold
deposited under gold loans were not sold and realized the loan amount due with
interest at the right time after giving notice to the debtor. It is unfair and
improper to ask the debtor to pay the balance, if any, on gold loan, which was
occasioned due to the default of the bank. When the government corporate,
nationalized and scheduled banks neglect, harass and refuse to advance finance
and credit at economical rate where does the common man, the small and marginal
farmers, go; they fall as an easy prey to the local money lenders who exploit
their helpless situation.
In ‘Hundi’ (inland bills of exchange)
transactions, consignor/seller entrusts his goods with a recognized transport
carrier. This carrier undertakes to transport the goods to the destination of
the consignee/buyer through bank. The consignor presents the inland bills of
exchange, lorry receipt and other documents to his Bank and /discounts/collects
the total price of the goods, handed over to the carrier, and covered by the
inland bill of exchange. The consignor then sends the original bill and other
documents to the consignee. The
consignee then has to submit the original lorry receipt and pay the bill amount
at the destination branch of the Bank. After completing this formality he is
allowed to collect the goods from the transport carrier. I have noted that the
consignee in collution with bank release the goods from the transport carrier
without making the payment, and in many cases put the interests of consignor in
jeopardy.
I have noted that the banks conveniently forget and
deliberately neglect to pay the bills for services rendered to them. I recall
the suit filed by Chitra Printers and Publishers, a division of Chitra
Communications Co. (P) Ltd. against the South Indian Bank Limited at Trichur,
to recover the printing charges of the New Year Cards 2000, that were printed
for them. Chitra Printers delivered all the New Year Cards on various dates
from 25-11-1999 to 12-12-1999 and the Bank accepted it without any protest and
made use of all the greeting cards supplied to them. Chitra Printers presented
the bill of 2,20,750 rupees on 20-12-1999 and the bank effected part payments
of Rs.1,10,000 and Rs. 65,000 on 31-12-1999 and 13-1-2000 respectively. The
bank delayed the balance payment to Chitra Printers on lame excuses such as
delay in delivery of cards and challenging the quality of paper used for
printing the cards. Since the bank raised such a contention, the dealer, M/s
Global Boards Ltd., has certified that the GSM of board used for printing cards
was 180 GSM. If they had serious objection the bank should have rejected the
goods then and there. It was neither fair nor proper on the part of the bank to
delay payment of the balance amount of 45,750 rupees with interest due on the
bill. The actual fact was that Shri. K.B. Kannampilly, the managing director of
Chitra Printers, was not prepared to butter the palms of the bank officer who
was in charge of the stores department of the bank. Therefore, Chitra Printers
was compelled to file a suit against the bank and further an appeal to the
District Court. Immediately on passing the appellate judgment and decree, the
bank discharged the liability. (O.S. No. 1759 of 2000 of the Munsiff Court at
Ernakulam and A,S, No. 183 of 2003 dated 9-8-2003 of the District Court at
Ernakulam.) Did the South Indian Bank Limited at Trichur take any action
against the Bank Officer who was in charge of the stores department; the one
who damaged the reputation of the bank? I have noticed that even State Bank of
India neglected to pay the professional fees and charges rendered by lawyers to
them. Even when they delayed payments; they failed to pay the interest due on
delayed payments made on professional bills and charges. Lawyers even refused
to appear and relinquished vakalaths for corporate banks.
Banks compete with each other in opening a lot of
branches even in remote villages in Kerala. Unlike the widely held belief,
their mission is not to help the poor farmers or enteprenuers engaged in small
scale industries; but to mobilize deposits from Non-Resident Indians. The
interest on such NRI deposits is meagre and they give much lesser to the
deposits made by the resident Indians. This NRI money that is deposited goes to
big corporate houses; the terms and conditions of which are dictated by them.
These amounts are expended ruthlessly for the import of unnecessary luxury
goods and costly machineries in order to obtain kickbacks. [This would amplify
the reason why the big public limited companies like Hindustan Machine Tools
Ltd, one of the world renowned manufacturers of machineries and tools are being
neglected. Don’t we have brilliant engineers to manufacture world-class
weapons? Why don’t we encourage our brilliant engineers and technicians? Why
don’t we stand on our own feet?
I am aware that Commercial Paper is an unsecured
promissory note with a fixed maturity of
not more than 270 days, issued
(sold) by large corporations to obtain funds to
meet short-term debt obligations,
typically for the financing of accounts receivable, inventories and meeting
short-term liabilities and is backed only by an issuing bank or corporation’s
promise to pay the face amount on the maturity date specified on the note.
Since it is not backed by collateral, only companies with excellent credit
ratings from a recognized credit
rating agency (CRA) will be able
to sell their commercial paper at a reasonable price. Commercial Paper was
introduced in India in 1990. Its usage is limited to only blue chip companies. A corporate would be
eligible to issue CP provided – the tangible net worth of the company, as per
the latest audited balance sheet, is not less than four crores of rupees.
Commercial Paper is usually sold at a discount from face value, reflecting
prevailing market interest rates and carries higher interest repayment rates
than bonds. Huge amounts are being given to blue chip companies in India. Do
they pay it back in time?
On one hand, many of the big corporate houses fail to
repay even such discounted rates of interest. On the other hand, banks charge
usury interests on loan amounts less than 1 Crore rupees, availed by poor
debtors. It is high time we conduct a survey and / or research on the small
loans (less than One Crore rupees) advanced by banks and other financial
institutions to ascertain the percentage of small scale entrepreneurs actually
benefitting from the loans granted to them, or, in the worst case scenario,
sweated it out 24x7 just to pay back the exhorbitant interest rates and manage
to keep their head above the water. The latter might result in a fleeting
afterthought for most households, of a life free from troubles, if not for the
blunder of taking a loan in the first place; leading to their living conditions
being from far from improved. In my opinion, the colonial theory of charging
compound interest serves to subtly rob the poor debtor. Simple interest alone
at 10% p.a. for agricultural and educational purposes and 15% p.a. for
commercial transactions alone shall be charged. Colonial theory of charging
compound interest is real loot on the common man. This practice has to be deprecated and
stopped.
Among non-European countries colonized by Europeans
during the last five hundred years, those that were initially richer and more
advanced tend paradoxically to be poorer today. That’s because, in formerly
rich countries with dense native populations, such as Peru, Indonesia, and
India, Europeans introduced corrupt “extractive” economic institutions, such as
forced labour and confiscation of produce, to drain wealth and labour from the
natives. (By extractive economic institutions, Darron Acemoglu, a Turkish
American economist, and James A. Robinson, a British political scientist, the
co-authors of a non-fiction book namely “Why Nations Fail: The Origins
of Power, Prosperity, and Poverty,” mean
practices and policies “designed to extract incomes and wealth from one subset
of society [the masses] to benefit a different subset [the governing elite.]”
But in formerly poor countries with sparse native populations,
such as Costa Rica and Australia, European settlers had to work themselves and
developed institutional incentives rewarding work. When the former colonies
achieved independence, they variously inherited either the extractive
institutions that coerced the masses to produce wealth for dictators and the
elite, or else institutions by which the government shared power and gave
people incentives to pursue. The extractive institutions retarded economic
development, but incentivizing institutions promoted it.
“Inclusive economic institutions…are those that allow and
encourage participation by the great mass of people in economic activities that
make best use of their talents and skills and that enable individuals to make
the choices they wish.” For example, in South Korea but not in North Korea
people can get a good education, own property, start a business, sell products
and services, accumulate and invest capital, spend money in open markets, take
out a mortgage to buy a house, and thereby expect that by working harder they
may enjoy a good life.
The electric power and the appliances made people
lethargic and pleasure seeking. Year after year more and more electric goods
like fans, ovens, microwave, T.V., fridges, washing machines, air-conditioners
and computers were flooding the market.
The media exploited the public and decided the brand which they should
buy and use. There was a great display of luxury by people in the upper social
level. At the other end the poor were suffering. The commercial banks too
exploited the situation by advancing loans with prohibitive interest rates and
encouraged the impecunious customers to buy and use modern electric appliances.
Many of the loan defaulters were pushed into debt traps and then dragged into
litigations in courts.
A
majority of poor farmers of our vast country still depend upon the weather
conditions for their varied crops. Both flood and drought weather conditions
badly affect their harvest and yield. We often hear from the news media that
such farmers and their families committed suicide to escape from debt traps of
money lenders and Banks who financed them. Such terrible events should be an
eye opener. In such facts sand circumstances it is just and necessary to help
these grief stricken farmers who have incurred heavy losses due to no fault of
theirs. The Central and State Governments should formulate schemes to provide
lnterest Subsidy/Holiday for the period of moratorium on agricultural loans and
in extreme cases the governments should write-off the loan advanced to these
poor farmers. Another category who deserves Interest Subsidy/Holiday is the
Educational Loans availed by students belonging to Economically Weaker Sections
from banks to pursue Technical/Professional Education in India. This would enable
brilliant students among such categories to attain higher/professional
education. They should consider a moratorium period of two years or six months
after getting an employment with a reasonable salary to make the repayment,
whichever is earlier. It is open to the government to fix riders or eligibility
criteria for granting such reliefs to the poorer sections in our society.
It
is often seen that due to certain unforeseen circumstances like a change in
government policy, the debtor might default to repay loan installments. In such
cases, it is not fair or proper for the Bank to initiate recovery proceedings;
the Bank could rephase the installments and extend the period for repayment,
thereby allowing the debtor to pay back the loan. The Banks, in very genuine cases, could even
advance a further loan on reasonable terms to bail out their customers who have
come across hard times. This will enable them to come out successful in their
businesses.
Certain
infrastructural developmental schemes or policies of the government might land
the debtors/loanees into great hardship and jeopardy, and financial trouble.
For instance, the central and the state governments ventured into the
Metro-Rail Project in the city of Kochi and prohibited parking of vehicles on
M.G. Road at Ernakulam and a few other areas on the route. The parking
prohibition badly affected the business transactions and many of the business
concerns lost their customers too. Some of the affluent businessmen shifted
their business to NH-47 and other new shopping malls located at Edappally and
Vyttila. The poor sections in the business community are reeling under this
inconvenience caused to them. The central and state governments should see that
the banks should rephrase their loan installments reasonably for a longer
period or declare a moratorium to enable them to repay their loans otherwise
the debtors and their families would face hard times.
I had the occasion to come across a lot of debtors who toiled all their
life to pay off their debts and interests due and accrued to the bank. I have
also seen guarantors who never touched or enjoyed the loan amounts but lost
everything they owned due to no fault of theirs; a grave injustice to many of
them. I recall a touching note in Arthur Hailey’s book, “The Moneychangers” at page 18, “Pieter Vandervoort, Sr. had
burdened himself with a bank loan and, to pay back the interest due on it,
laboured from pre-dawn until after darkness. He worked so hard that his Sunday
relaxation was usually seven days a week. In the end, he died of overwork and
impoverishment, after which the bank sold his land, recovering not only arrears
of interest but the original investment. His father’s experience showed Alex –
through his grief – that the other side of the bank counter was the place to
be.” (His son became a bank officer.)
There is a tradition of “General Amnesty and
Debt Cancellation” in ancient Mesopotamia and Egypt from 3000 to 1000 B.C.
Hammurabi began his 42-year reign as “king” of Babylon (located in present-day
Iraq,) in 1792 BC. The Hammurabi Code is in the Louvre Museum, in Paris.
Hammurabi proclaimed the official cancellation of citizen’s debts owed to the
government, high-ranking officials, and dignitaries. The so-called Hammurabi
Code is thought to date back to 1762 BC. Its epilogue proclaims that “the
powerful may not oppress the weak; the law must protect widows and orphans (…)
in order to bring justice to the oppressed.” The many ancient documents
deciphered from cuneiform script have enabled historians to establish beyond
any doubt that four general cancellations took place during Hammurabi’s reign,
in 1792, 1780, 1771, and 1762 BC., when inequality increased and intensified.
The Rosetta Stone text confirms that the tradition of debt cancellation was upheld
in Egypt by the pharaohs from the 8th century B.C., before
Alexander the Great conquered the country in the 4th century
B.C. It relates that the pharaoh Ptolemeus V cancelled all debt due to the
Throne by the people of Egypt and beyond, in 196 BC. The tradition of
general debt cancellation is an integral part of the Jewish religion and of
early Christian texts, by Deuteronomy which teaches an obligation to cancel
debt every seven years and the Book of Leviticus, (Chapter 25,) on every
jubilee, that is every fifty years. The Reserve Bank of India declared a
“One-Time Settlement Scheme” for debtors. How many debtors, below 50 lakh
rupees, obtained the relief? The people of India are aware that the benefit of
the “One-Time Settlement Scheme of the Reserve Bank of India” was availed by
the big corporate houses. In most of such settled cases a tiny portion of the
collateral security would have been enough to pay off the debt due to the
banks, owing to the inflationary trends that prevailed in our economy. The gap
between the rich and the poor is widening day by day.
Till
1965, most of the bank managers were matriculates. There were very few degree
holders even in the higher ranks. This qualification was adequate for the job.
The scenario changed suddenly with the increase in salary. Lured by the
lucrative job, post graduates and professionals too joined the banks. They were
factually disguised or under-employed. The stark reality was the high rate of
unemployment. One wonders why such highly qualified personnel are required to
do simple arithmetic calculations like additions, subtractions and calculation
of interests; and filling printed forms and agreements. I have noted many of
the intelligent staff ended up frustrated and unsatisfied with their jobs. This
finally ended in their resignations. Money is not always the criteria; job
satisfaction has to go hand in hand with it. I personally know some of those
who left their bank jobs. Many of them have found solace in the teaching
profession, journalism; some even started concentrating on their plantations.
They made more money and attained better satisfaction in life. One such example
is my co-brother, Shri. Thomas
Vallikappen. He was a very efficient and dedicated staff of the State Bank of
India. At a very young age he rose to the position of Chief Manager of the
Bank. His decision to take a voluntary retirement from service was according to
him one of the wisest decisions he made. Now, he is engaged in activities of
his liking like tourism, editing journals and writing. He has started blogging
his articles titled “Spirit of Meenachil,”
which is worth reading. Shri. K. Balachandran Kannampilly is another devoted
former Chief Manager and Administrative Officer of the State Bank of India,
Zonal office, at Ernakulam. He was very close to me. He resigned without
waiting the required two more years to obtain pension. He joined IAL Container
Line (India) Ltd. 2-B, 2nd Floor, Darragh Smail Centre, W. Island, Kochi as its
Deputy General Manager. He also engaged himself in the cultivation of fruits,
vegetables, and flower farming at Munnar and Irumpanam, for export purposes. He
also owned a printing press, Chitra Printers, at Manikiri Road, Pallimukku, at
Ernakulam. He too has started enjoying his life.
It was common for commercial banks to add on interest to
the defaulted account on a “due basis” in order to show huge profits; with the
malafide intention to claim better salaries and other perquisites for their
employees. The management enters into an unholy alliance with trade unions and
as part of the collective bargaining through slogans and strikes causing
hindrance to the public; such gimmicks are only a camouflage or screen to hide
enhancements in salary and other emoluments to bank employees. Most of the
officials of banks receive better pay packets than the President of India. This
makes them arrogant enough to harass and deny justice to the common man. I was
disgusted at the crude behavior of a few branch managers. Banks continued this
gimmick untill the former finance minister and later prime minister of India,
Dr. Manmohan Singh, interdicted them and directed them to add interest only on
a “receipt basis.” In cases where the banks failed to issue a demand notice and
neglected to take steps for recovery of the loan amounts with interest, the
banks are entitled only to a simple interest at 6% p.a. on the (NPA),
Non-Performing Asset. Banks spend lavishly on posh bank office-buildings,
elaborate furnishings; including air-conditioners, curtains, carpets, potted
plants and flowers, refridgerators, and an assortment of varied soft drinks.
The funds for these are made available with usury interests collected from the
common man. It is high time to stop such unnecessary extravaganza. Ironically,
the poor debtors are the ones who sustain and maintain 2, 22,038 employees of
the State Bank of India, and plenty of other employees in other nationalized
and scheduled banks and other financial institutions. The high salaries make
the bank officials more corrupt. Every day news bring out new bank scams
involving hundreds and thousands of crores and CBI and EOW are investigating
these frauds. I am pained to observe that the law in this country punishes very
harshly the small offenders involved in offences of stealing of small amounts
to the tune of few hundreds or few thousands. Such accused are often sent
to jail but the big fish who defraud the bank / exchequer of thousands and ten
thousands of crores of rupees escape. They are dealt with by investigating
agencies in a different manner and the law does not act with the same harshness
to these offenders. One wonders why there is nobody to check this anomaly in
our economy. The common man raises his eye brows in dismay! The central
government should make necessary legislations to check, control and cut down
unnecessary expenses of banks and prohibitive interests charged on poor
debtors. The government should not ignore the welfare of the people. The
central government, insurance companies and the public are the major share
holders of the State Bank of India and the other nationalized and scheduled
banks and other financial institutions. Doesn’t the government have any role in
the management and control over their income and expenditure? Are the
appointments of employees fair and proper? Why isn’t the UPSC entrusted with
the job to make appointments to fill the vacancies in banks? Are the government
and other investors getting any reasonable return on their investments? Why doesn’t the government commence an Indian
Banking Service and appoint civil servants with Economics and Law background in
higher levels like Assistant or Deputy General Manager onwards to manage and
control the affairs of corporate, nationalized and other scheduled banks and
financial institutions?
Excerpts from
NEED OF THE HOUR
By
Joseph J. Thayamkeril
