Sucheta Dalal :The art of fighting banks' interest overcharges
Sucheta Dalal

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The art of fighting banks' interest overcharges  

Mar 22, 2004

If you are a small scale sector industrialist your lenders themselves can threaten the existence of your enterprise.

The art of fighting banks' interest overcharges

By Sucheta Dalal

Deep in the heart of old Mumbai, near C P Tank lies the Madhavbaug temple. Massive gates protect the precinct, comprising a huge courtyard dotted with shops selling items for worship.

In a row of tiny hole-in-the wall shops, leading off from these temples is Varun Computer Service, a tiny two-table office that is run by Rasiklal Gandhi and his son. The computer centre is a misnomer. As Gandhi’s postcard-size pamphlet proclaims, his business is to ‘‘identify excess interest charged by bank’’.

The sales pitch addressed to ‘‘advocates, borrowers and defendants’’ says that he can scrutinise the loan accounts and re-compute interest calculation as per the agreed/contractual rate of interest and in line with various provisions of Laws, orders of the Supreme Court, High Court, DRAT (Debt Recovery Administrative Tribunal), DRT (Debt Recovery Tribunal), RBI (Reserve Bank of India) directives.’’

How did re-computing interest turn into a business opportunity? His own experience of fighting a long legal battle with Indian Bank in connection with Mahavir Metal Mart and a sister concern. He has battled through the civil courts and the DRT, struggled to get the RBI to part with basic information regarding the applicability of its guidelines, sourced the right information and then re-computed his own interest payable. While Mahavir Metal Mart closed down long ago, Gandhi fought on to protect his assets pledged to the bank. He soon learnt that thousands of smaller borrowers suffered a similar plight and his experience would, for a small fee, help them fight banks that were overcharging them.

Talking to Gandhi reveals that the travails of small scale sector businessmen are humungous. The absence of lenders’ liability rules and the opaque functioning of DRTs allow banks to ride roughshod over borrowers, kill their businesses, confiscate their assets pledged as security and then leave them with massive legal bills. Over the years, Gandhi has recomputed interest for nearly 300 clients who are mainly from Mumbai, but occasionally from as far as Sangli, Raigad, Hyderabad and even Assam. Clients come to Gandhi through a network of advocates and there are probably thousands of or lakhs of borrowers who are still chasing their tails to figure out whether their banks have been fair to them and if redressal is even available. Many simply may not know for years that they have been overcharged.

I met Rasiklal Gandhi through Deepika D’Souza and her father, who sought Gandhi’s services to help them in a decade long battle against a nationalised bank to save Dil Udyog, a SSI unit making single point gas monitors for explosive gases. Their charges against the nationalised bank include failure to disburse loans sanctioned to them; charging higher interest for facilities sanctioned, creating excessive mortgage and securities against amounts sanctioned and not disbursed, and finally refusal to settle their loan account or allow it to be transferred to another bank.

In case after case, it becomes apparent that banks treat the smallest entrepreneurs with utmost callousness and in fact drive them into losses and bankruptcy by refusing to provide timely and promised disbursement of finance.

Most small borrowers, whether Gandhi or Deepika D’Souza’s late mother Elinda, go through a predictable set of attempts to seek redressal before ending up in court or with the DRT. Here is what they find.

The banking Ombudsman only looks into delays in clearance and collection of cheques. The Department of Banking Operations & Development, when it replies, says that ‘overcharging’ of interest amounts to a fraud and so is not their domain. The Rural Planning & Credit Department sometimes acts as a post office and forwards complaints and replies back and forth without any attempts to understand or mediate.

The cases land up in the High Court or the DRT and languish for two reasons. The bank is never under pressure to resolve the problem because it is usually sitting on pledged assets, which are far in excess of the amount lent or sanctions reneged. Courts tend to side with nationalised banks or simply do not want to get into the merits of the case which too helps the banks. On the other hand, the SSI unit is usually pushed into bankruptcy because it is simply not equipped to keep going without finance and at the same time meet legal expenses and deal with delays.

The D’Souza’s case is a rare example where they have doggedly kept the unit running after a ten-year battle. In this case, the irony is that the DRT has confirmed that Dil Udyog was entitled to concessional finance, as per RBI directives under the Women Entrepreneur SSI Unit scheme. Yet, it lost the case. What started as a loan of Rs five lakhs is now threatening (after compounding and penal interest) to swallow their personal assets, today worth almost a crore of rupees, pledged with the bank. The irony is that the government twice bailed out this particular bank after it wiped out its networth when a former chairman blithely went on loan giving spree to his political friends. It made no difference to small borrowers like Deepika’s mother even when the bank was later headed by a dynamic woman chairperson.

I asked Gandhi if any of his clients ever won a case. He cites three successes that keep the fight alive for hundreds of others. The rest have shut down, given up or are languishing in court. The successes include Thane court (Suit No. 701/95) ruling in Central Bank v/s Excelsior Education Society, where an interest reduction of Rs 50 lakh was allowed in a Rs 2.6 crore dispute. Another success was the Alibag Court (Suit 82 of 88)—Sangli Bank v/s Raigad Concrete where a reduction of overcharged interest claim was upheld. His own case saw a glimmer of hope when the Bombay High Court suggested that a Reserve Bank deputy general manager be asked to verify the interest calculation. The bank rejected the suggestion and he lost after the case was transferred to the DRT.

Small firms are engines of growth all over the world. However, their biggest problem is access to different kinds of capital (loan, equity and quasi equity) at market rates at the right time. The reason is that the financial sector is still dominated by nationalised banks which are opaque, open to influence by politicians and big businessmen and not accountable to the public thanks to abysmally weak institutional redressal mechanisms. The cases of overcharging of interest is shocking but really part of a piece.

-- Sucheta Dalal