Small loans lead to big losses

Preetha Shaji, a homemaker near Edappally in Kochi, is on a hunger strike against what she describes injustice by a private bank in attaching her house for the default of a loan which  neither she nor her family took. Her husband has stood surety for a loan taken by a distant  relative and mortgaged their property. The person who took the loan defaulted but the bank  initiated RR against the family. Small-scale cashew processors in Kollam also tell similar stories. DC takes a look at issues faced by loan defaulters at the retail level.

The hunger strike began by Preetha Shaji, a homemaker, at Pathadipalam near Edappally in Ernakulam the other day had gone largely unnoticed as the media were entirely engrossed in the disappearance of diamond merchant Nirav Modi after swindling over Rs 11,000 crore from Punjab National Bank.  The disappearance of Modi had surfaced at a time when the banking sector in the country has been burdened with nearly Rs 10 lakh crore soured-loan buildup. The corporate sector in the country, the main culprit behind the soured debt, has always been treated with reverence by the banks. But when it comes to persons like Ms Shaji the approach of banks take a different character altogether.

Her family has been running from pillar to post for the past two decades to extricate themselves from a loan obligation in which they have no direct role.  Shaji, her husband, stood as a guarantor to his friend and distant relative Sajan for a loan of Rs 2 lakh by mortgaging his property of over 22 cents of land at Pathadipalam in 1994. The now defunct Lord Krishna Bank provided the loan.  Mr Sajan, however, defaulted on repayment and the bank served notice to Mr Shaji to repay the loan. He repaid '1 lakh by selling 4 cents of the land but could not pay the entire amount as he fell ill and was unable to pursue any vocation with a significant income. The LKB meanwhile collapsed, and it was taken over by Centurion Bank which in turn was acquired by HDFC Bank Ltd. The loan burden meanwhile climbed with interest and penal interest to reach an alarming level of Rs 2.30 crore. 

Mr Shaji and his family are not having any clue on why a loan of Rs 2 lakh has reached to a burden of Rs 2.30 crore.  The HDFC Bank officials declined to listen to pleadings of the family and moved to the Debt Recovery Tribunal (DRC) as per the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act better known as Sarfaesi Act to initiate recovery proceedings. The DRC in Kochi gave a judgment to auction the 18.5 cents of land for Rs 37 lakh in December 2013, and the family has been trying to ward off the process in the past three years. 

According to V.C. Jenny, general convener of Anti Sarfaesi People’s Movement, the family is one of the several hundreds of persons caught in the debt trap orchestrated by the real estate mafia and unscrupulous banking and DRT officials.  “Even small kids in Kochi know that in places like Pathadipalam near Edappally a cent of land fetches a minimum of Rs 10 lakh. The DRC verdict has given away such a piece of land for a small amount of Rs 37 lakh, showing the influence of the racket involved in such deals,” she said.

Ms Shaji launched an indefinite hunger strike on Saturday after the family with the support of the Anti Sarfaesi People’s Movement conducted an agitation for the past 217 days. According to P.J. Manuel, another leader of the anti-Sarfaesi agitation, Ms Shaji has been forced to launch a hunger strike as the bank has not shown any inclination in resolving the problem with humanitarian consideration.  “In most of the cases of corporate debt restructuring, banks always willingly accept huge haircuts, but when it comes to people like Mr Shaji they stonewall any attempt for a just solution,” he said. 

He also alleged the existence of a well-established nexus comprising corrupt bank and DRT officials and real estate operates to acquire the property of gullible people cheaply and then sell it at a premium.  “We have dealt with several such cases in Kochi in the past three years. Several people from all parts of the state are approaching us for help”, he added.   Legislators M. Swaraj and P.T. Thomas had made a representation to chief minister Pinarayi Vijayan seeking the intervention of the state government.

The experience of Mr Shaji and his family is not an isolated issue. Many small and medium cashew factory owners in Kollam are also in a similar situation.   A cashew factory owner hailing from Chandanathope in Kollam attempted suicide early this month as he received a revenue recovery notice for the debt of Rs 7.5 crore. His factory employing nearly 800 persons remained closed for the past one year due to the crisis in the sector.  A revenue recovery notice has also been served to another cashew factory owner for a default Rs 4.5 crore.

“Several cashew factories are facing revenue recovery owing to the financial crisis. The government should immediately intervene and announce a financial package,” says I. Nizamuddin, secretary of the Federation of Cashew Processors and Exporters.   The problem facing hundreds of ordinary people are not getting any attention from the bankers, state or central governments. The Nirav Modi episode has exposed one aspect of the rot afflicting the banking system in the country. How the rich and powerful get away using the loopholes in the system and their high connection leaving banks high and dry.  The soured debt in their loan books mainly caused by personalities like Modi has the potential to create unprecedented havoc in the entire financial sector.