Sucheta Dalal :Bad Bets to Bad Debts
Sucheta Dalal

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Bad Bets to Bad Debts   

February 9, 2009

DIFFERENT STROKES  (MoneyLIFE Issue, 26th Feb 09)


We, at MoneyLIFE, try to help people to resolve their grievances. And, indeed, many people have benefited from our intervention. However, it is impossible to help anyone who has made a disastrous, foolish or careless investment.


Many companies are simply out to run away with your money. Others are well-meaning but get into problems and fold up. There is always a risk attached to investment, especially when the promised returns are higher than those offered by secure investments such as bank fixed deposits, public provident fund or national savings certificates. We cannot mitigate that risk.
Investors must simply learn to be more careful before parting with their hard-earned savings. There is often little hope of recovery if you have made a bad investment, especially in unsecured debt instruments. If a company goes bust or vanishes, you may have to simply forget about your money. The alternative is to spend more time and effort on chasing futile recoveries. The Ministry of Corporate Affairs (MCA) can, indeed, find ways to chase these managements, especially when the Company Law Board has passed orders against them, but its record of redressal is pathetic.
MoneyLIFE’s focus is to explain the risks attached to various kinds of investments, including seemingly safe mutual funds and unit-linked insurance plans. We also take pains to help investers read between the lines rather than blindly believe media and broker reports about companies. So, it is rather tragic when investors seek our help in resolving complaints that have very little hope of redressal. What is especially sad is that these investors are often senior scientists or top army officials who were probably excellent at their work but clueless about investing. Usually, they are senior citizens who are following up on their investments after retirement. 
Here are some examples. An army officer has invested in DCM Financial Services, Kirloskar Investment and Lloyds Finance. These were big names 15 years ago but, today, only Lloyds Finance is able to repay the principal, that too in cases of hardship. A scientist has made investments in several finance firms, namely, CRB Capital Markets, Hindustan Financial Management, Midwest Leasing Finance Limited, Shoppers Investment Finance Company Limited (Ready Money), Asia Pacific Investment Trust and Madras Motor Finance Guarantee. People usually have given money to any one or two of these – not all. He seems to be fatally attracted to bad bets.
A second set of complaints is from credit card users who end up in a quagmire because of sloppy handling of disputes with banks. One person stopped paying his minor card dues because his bank would not reverse certain charges. The bank simply deducted the debt amount from his savings account. In fact, it may have done him a favour, instead of allowing his dues to balloon.
Take the case of Shibu, who sent me this email last week saying, “I was badly bruised in stock market due to bad deliveries during the mid-1990s and eventually defaulted on my credit cards. I was in my 20s and was kind of misguided due to my stupidity. I know for sure that my name figures in the negative list of CIBIL through at least three banks. Currently, my finances are okay and I am living in a correct way. I can’t undo my past. How can I clear my name from the CIBIL negative list? I don’t want to be considered a cheater.” He estimates that his principal repayment alone would be over Rs2 lakh. At an interest rate of over 40%, it boggles the mind to think of what he owes his banks. Is there no way out for Shibu?
Well, it depends on whether banks believe what he says. He has no access to credit or loans. Will he continue to live in a “correct way” if he can borrow again? A credit counselling agency such as ICICI Bank’s Disha or Bank of India’s Abhay can probably guide Shibu. At MoneyLIFE, we try and help you to invest wisely, but no one can help investors who make bad bets or have allowed bad debts to pile up.

-Sucheta Dalal

-- Sucheta Dalal