Sucheta Dalal :Recovery Threats: Barclays' st<x>yle - (MoneyLIFE Issue 11 Sep 08)
Sucheta Dalal

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Recovery Threats: Barclays' Style - (MoneyLIFE, Issue 11 Sep 08)  

August 26, 2008

Exclusive news, the stories behind the headlines and the truth between the lines




Recovery Threats: Barclays' Style


Barclays Bank, a relatively new entrant into India, has yet to learn that Indian courts and regulators do not take kindly to recovery threats by big lenders. Not only has it employed a call-centre to make recovery calls, but it apparently goofed up and has given the recovery centre a list of potential customers for telemarketing. Consequently, people who have nothing to do with Barclays received calls spewing filthy abuse asking them to pay their dues. The wife of techie, social activist and columnist, Veeresh Malik, was one such victim. While a goof-up is easily rectified, Barclay’s responded to Malik’s emails with a high-handedness that was almost hilarious. At one point, it refers to Mr Malik’s angry complaint as “disappointment” and asked him to “contact the bank” with “your full postal address and details of your complaint” which it promised to “forward to the relevant area for investigation”. It also said that it would respond to him in writing for security reasons.


Further angry exchange led to the admission that it had, indeed, employed the telemarketing firm that made the calls and an apology was tendered. The Bank was equally cagey when MoneyLIFE asked for its reaction; it only said that it had started an internal investigation. It did not bother to clarify whether the goof-up has been corrected or innocent people are still receiving threatening calls.


Instead, the Bank insists that it had only asked the telemarketing firm to make sales calls. It says to Malik, “We would therefore believe that the call received by your wife was in this regard and was not a payment collection call. However, in order to validate our belief and your claim, we would require the telephone number on which your wife was called by this agency.”


The Bank seems to imply that Malik’s wife was not even threatened or abused and mistook a marketing call for threats! Or, it is calling Malik, who heads an IT firm in Pune, a liar. An angry Malik tells us that he has kept recordings of the calls. He has also threatened action against M/s HiTech, the telemarketing firm, and told the Bank, “Please note, we are not your customers, and what your Bank’s agents have caused is not simply an inconvenience, to be treated lightly by you in such a patronising manner.”


The Gullible Beware


The growing use of the Internet has opened the gates to a spate of scams aimed at duping the greedy and gullible. MoneyLIFE has frequently warned of confidence tricks such as the Nigerian scam, the limited edition gold coin chain and the attempt to use people’s bank accounts by masquerading as part-time employers. Some tricksters try to lend authenticity to their schemes by pretending to hold deposits with the Reserve Bank of India (RBI) pending authorisation to make foreign remittances for charities and trusts. Queries about such deposits have forced RBI to warn people not to be taken in by such scam artists. It has issued a detailed statement which says that certain overseas organisations have been advising individuals/companies/trusts in India that they have kept huge sums of money in an account with RBI, which will be used for disbursing cheap loans in India after RBI’s approval.


Some even produce fake deposit slips as proof. RBI says that it does not hold any such deposits for individuals or trusts. It also points out that any remittance to participate in a lottery (or lotterylike scheme, including money circulation schemes) is prohibited under the Foreign Exchange Management Act. So the next time you are tempted to respond to such offers, think carefully. It may even be useful to check out websites such as (under Scam Alerts), which meticulously document every new scam with details of how they dupe people. The tricksters are extremely heartless and play on senior citizens or people in financial difficulties (mortgage scams offering to lower interest rates or fix bad credit histories for a fee), who are more susceptible to offers of easy money. There is a simple guiding principle to avoiding such scams – if it sounds too good to be true, it usually is!


Derivatives Mystery


The selection of stocks for derivatives (futures & options– F&O) trading in India has mystified everybody ever since SEBI (Securities and Exchange Board of India) took charge of the approval process. So much so that a leading finance firm executive says, “Inclusion in the F&O list has turned into a medal of recognition for companies.” On 13th August, a new list of 39 stocks was added to the F&O list which again includes several grossly illiquid ones such as MRF and Container Corporation of India.


While the inclusion of illiquid stocks baffles the market, because they are prone to easy manipulation, a former SEBI member, who is also on several capital market committees, told a newspaper that liquidity cannot be a condition for selecting stocks for derivatives. If only liquid stocks were included in F&O, it will lead to a vicious cycle where already liquid stocks become more liquid, according to him. But does it help to do the opposite (put illiquid scrips in the F&O segment), when it leads to manipulation and excessive volatility? That, says the gentleman, is the regulator’s problem. It must beef up surveillance and regulation.


But consider this. SEBI already has liquidity or market capitalisation as criteria when it includes large companies in the F&O segment on their listing day. In the past, this often allowed manipulators to ramp up the listing price even as institutional investors flipped big chunks of shares after listing. SEBI ignored those of us who said that there must be a postlisting cooling period to allow shares to find their true price before they are included in the derivatives segment. But it allowed the manipulation game to continue (see Cover Story of this issue). The issue has lost some relevance, since the IPO market has slumped. The proposal to allow retail investors to pay for shares after allotment will also help.


However, the mystery about unfancied and illiquid shares in F&O remains. ‘Experts’ who advise on such issues opine that member-wise trading limits prevent manipulation of illiquid scrips just as the marketwide cap of 20% on free float limits speculation in liquid stocks. This is not correct. Manipulators work in a cartel to beat member-wise limits and, in liquid scrips, as we have pointed out in the previous issue, some FIIs have even borrowed through Participatory Notes to short-sell and influence prices. The regulator already knows that it is easy to manipulate shares in the derivatives market and this excessive volatility leads to huge losses. A cease and desist order issued on 18 June 2007 by SEBI’s whole-time member says, “The F&O segment is awash with transactions…which essentially are non genuine… (and) in the nature of fictitious transactions…” Clearly, this action and surveillance hasn’t curbed such fictitious trades. The question then is: why bother with a selection process? Isn’t it better to include every stock listed on the NSE (National Stock Exchange) in the derivatives list? Since the BSE has almost no derivatives trading, it can hardly allege favouritism.


Interestingly, there is a delicious irony in the NSE’s monopoly in index futures being challenged by the Singapore Stock Exchange which trades on an NSE licence. Singapore Nifty volumes are soaring, and since it opens earlier, it also sets the price signal. Paradoxically, the same ‘experts’, who want absolute freedom for foreigners to trade in India (while convertibility restrictions remain for Indians), are bemoaning the ‘gifting’ of the Nifty market to foreigners. Apparently, a local monopoly is welcome and international competition is a national issue.



-- Sucheta Dalal