Friday, November 09, 2007
It hurts when an Indian bank loan goes bad
By Raja M, Asia Times
Nov 8, 2007
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.
Nov 8, 2007
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.
Labels: India
¶ 7:38 AM
