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Pay up or we'll embarrass you

December 11, 2003 09:13 IST

Last week in Chennai, Allahabad Bank employees went to the houses of those who had defaulted on the repayment of loans to the bank and squatted in silent protest, asking for the money.

Indian Bank, too, did just this some time ago. Both banks found that defaulters paid up at least a part of their dues on the spot.

Say hello to the new means of recovering dues from small borrowers that India's state-owned banks are resorting to: embarrass defaulters publicly and force them to cough up money.

Banks -- Punjab National Bank in the Capital, for instance -- are threatening to send women employees to gatecrash clients' Diwali parties, send bank employees to beat drums in front of defaulters' homes, put up posters, take out processions and even send postcards to clients.

The postcard strategy works in rural and semi-urban areas -- they're "open letters" and so the contents are public. Most defaulters quickly pay up under such circumstances.

To be sure, banks are also moving debt recovery tribunals and seizing assets under the Securitisation Act. They are also dangling carrots to recover money.

Also, such tactics are not entirely new.

In the 1990s, Citibank used to send eunuchs and musclemen to residences and workplaces of credit card defaulters.

And a senior banker recalls having seen Brahmins fasting under the scorching sun outside a defaulter's residence.

"In rural Kerala, money lenders use the service of Brahmins to recover bad debts. It is a sort of threat -- if anything happens to the Brahmin while fasting, the defaulter would incur the wrath of God."

But the current tactics banks employ are ingenious, to say the least. Kolkata-based Uco Bank, for instance, mounts a cassette player on a mobile van which plays popular folk songs in rural Bengal.

This is meant to attract crowd. Once a crowd gathers, the bank's employees announce the advantages of settling their dues and the disadvantages of keeping them sticky over a microphone. This is now a regular practice.

The bank also puts pressure on people with social status and the ability to pay. A group of bank officials sit in front of defaulters' residences or business establishments for days.

"These officials don't carry any placards or shout any slogans; they just sit there. Curious neighbours come to know that the socially amiable, wealthy person is a defaulter," says a senior UCO Bank executive. The success rate here is as high as 85 per cent.

Allahabad Bank officials carry placards that proclaim: "Settle your loan and buy peace of mind," "A bank's money is people's money -- non-payment is a crime" and "Socially boycott loan defaulters." Next comes the one-line: "Please settle your loan so that legal action is not taken against you."

As the procession of Allahabad Bank employees reaches the homes of defaulters, borrowers fear loss of social status and 80 per cent of them pay up.

Accounts with at least Rs 800,000 or more are shortlisted for such action. The defaulters picked are those with the ability to pay but who cannot be strictly classified as willful defaulters under the law.

Andhra Bank has formed a 20-member crack team at its headquarters. A few members of the crack team assisted by officers of the local branch or zonal office visit the business premise of the borrower and put moral pressure on him.

"Since the formation of the crack team in October, we have recovered Rs 10 crore (Rs 100 million) on the spot through this initiative," says J P S Bhatia, deputy general manager, recovery management department of the bank.

In the case of wilful defaulters, the entire staff of the branch goes to the borrower's business premise after the bank's business hours.

"We won't cause any interruption to the business of the borrower. But when more than 10-15 bank employees are sitting there to recover the bank's money and customers are watching, the borrower feels embarrassed," Bhatia adds.

The executive director of the bank recently wrote to all employees requesting them to voluntarily take up the responsibility of recovering money from at least 20 NPA accounts.

Those officers who recover substantial sums are rewarded in various ways, including overseas trips for training.

But some things are a no-no -- visiting borrowers' residences at odd hours or abusing them on the phone. Public sector banks have, in fact, adopted a code of conduct chalked out by the Indian Banks' Association.

Additional reporting by Debjoy Sengupta in Kolkata, G Singa Rao in Hyderabad and Sanjay K PillaiĀ  in Chennai.

Tamal Bandyopadhyay in Mumbai