There are very good banks and there are banks that have unnoticed practices of fraud and deception. In India, when it comes to rogue practices by erring banks, the Authority is soft on them and keeps quiet .

Government of India appears reluctant to regulate the erring among the banking sector. For instance it hasn’t come down on banks on issues such as appropriation of dormant accounts or on usurpious credit card interest policies or credit card and other debt collection tactics. The borrower pays up what the lender wants. This always includes monthly service fee for months after the service is stopped, exorbitant interests and penal interests on unqualified service charges and interest on interest. Government wouldn’t notice as it wouldn’t antagonize the banking sector.

If this happens to individuals, what is happening on the business banking front ?

A bank decides to declare a business a Non Performing Asset (NPA). RBI says so be it A bank decides to call a borrower a defaulter and it goes on record. Some of these negative records are visible and a lot more invisible.

A bank declares a certain amount as payable. It arrives at an outstanding in a certain way and that is the last word. RBI doesn’t look into the details. Perhaps it considers the banks above suspicion. The judicial system for this sector is called the Debts Recovery Tribunal, and it happens to presume the banks to be above suspicion.

The following is firsthand and factual. I had a larger issue. The Erode branch of Federal Bank first hurt my business prospects, then reversed all the progress that I had made and finally caused a total collapse and then went on to place it on record that my company had become an NPA – (This provision conceded to banks that accords an extraordinary ability on the part of any bank to preempt any other bank or financial institution from banking with a company so categorized). Such a record also gets into the registries of credit agencies such as Dun & Bradstreet, Coface, SMERA, CRISIL and a score of other agencies who maintain background records that do tremendous damage unseen, irrespective of whether the records so created were fair or unfair.

RBI does not have a proper system to examine such categorization as accurate nor does it have a balancing mechanism to ensure that this power is not used abusively.

My textiles manufacturing and export company – Whitefield Cottons Private Limited - began with US $ 100,000 in direct export and progressed to a four fold growth in three years even with an unprofessionally managed export credit account with the Erode branch of Federal Bank.

Erode is a small town, the branch was not a forex branch, had a management that was both incompetent and corrupt with one of its officers reported to compromise customers’ accounts and another found to disburse loans within his limits in exchange for a predetermined handout. One of them was later charged and another was demoted.

In this banking climate my account - a very well performing account with no export realization problems, ample collateral securities and guarantees, proven performance and visible prospects - was subjected to severe procedural problems. It took the banks months to decide on time sensitive proposals that are decided in a matter of days, if not hours by other good banks. My company lived with this problems as it was thought difficult to switch to another bank. On at least four instances when other banks showed interest in granting us better banking facilities the local Federal Bank branch management placed informal and formal hurdles on their local competitors from getting my company’s bank account.

The export proceeds during 1996 - 2000 was a little over US $ 1.5 million dollars with the packing credit maximum limit in year 2000 being Rs 80 lakhs. This limit was secured by a collateral of ample value and additional guarantees. At this point the bank severely hurt a major export order, and this reversed all the export progress that the company made during the first four years - even as textile companies in India in general were non-performing.

First I sent a polite request to the Chairman of the bank for a comprehensive review and the system made sure that there was no response for a year as my company continued to degenerate in the absence of an unfairly frozen limit. At the same time the bank was not allowing other banks that were eager to take over the account either.

With the situation worsening I filed a complaint with the banking ombudsman. I don’t know how the bank handled the Ombudsman, but the ombudsman did not go into the details and sent a short reply to explain as to why it would not go into this. I persisted and sent a vividly detailed compliant to RBI and after some communication back and forth over the next two years. I also traveled to Bombay to meet with the CGM of RBI who said in summary “You complained, we inspected the bank, we normally don’t do this on the basis of a complaint from a customer, we did that in your case, we did not find any documentary evidence. Beyond this RBI is helpless”

The officers did not take note of my protests that the bank must have made records selectively available and that my own records must have been co-examined. RBI rushed a letter to say that the file was closed. The Export Promotion Council protested and RBI stayed unmoved.

A year later under the RTI Act I obtained a copy of the Scrutiny report of the inspection. RBI sent it to me a month after the RTI application was filed and it was found to be blatantly misleading and a complete distortion of the situation. The inspection report covered the bank and was designed to stop the higher officials from paying serious attention to the complaint. It placed on RBI and government record damaging observations that misled the higher officials of RBI, the Finance Minister and the Government.

I challenged that report with a 209 page document to the Governor, RBI, complete with all the evidence that required to show that the inspection report was misleading and erroneous and there is no response yet from RBI. Nor from the Finance Minister to whom a copy was sent. My letter was to ask to Governor of RBI to annul the scrutiny report and set right the records in RBI’s files and elsewhere.

Nine years ago, when I first wrote to the bank’s chairman or later complained to the banking ombudsman the bank could have done something as simple as take a look at what was happening to my account The bank needn’t have acknowledged the wrong done, but simply might have corrected the course and balanced out the damage done. Such a simple, straight forward action would have ensured the survival and growth of this company, perhaps to a few million dollars in networth as on today It didn’t. All that it did was to assert its powers to ensure that no one can be up against a bank. It handled RBI and by tact allowed the situation to worsen and went on to classify my account as an NPA and then moved DRT. The bank destroyed my company and is doing a lot of harm even today.

DRT is meant to be a adjudicator, but even by title - - the Debts Recovery Tribunal- , the DRT focuses on Debts recovery. It proceeds on the assumption of a debt. Its approach is simply that of “Is this your signature? Then pay up” In my case I had reasons to be alarmed at the claim from the bank. Gullible as a common man, I was under the illusion that a bank is above suspicion, so I took the bank’s account as accurate. As matters became complicated, as it began to surface that there had been severe administrative irregularities, it became necessary for me to verify the accounts.

The branch had handled over $ 1.5 million of my export proceeds directly wired to the bank by my overseas customer’s bank. Erode branch being a branch not equipped as a forex branch, and the branch being so small, had a chaotic system of accounting. The bank had bulky manual registers and one or two computers but not sufficient to be fool proof. The export proceeds so received were moved between various accounts and apportioned among various heads internally - There was a PCL account, there was an FUBP account, there was a PCL interest debit, there was an FUBP interest debit, there was bank charges debit and there was an automatic insurance payment debit, some money was retained as deposits in the name of the company or its directors with the receipts retained by the bank. If 20 lakhs was received on a certain day, 15 lakhs went towards repayment, 100000 towards payment of PCL interest, 100000 went towards FUBP interest, 10000 towards ECGC insurance premium, 20000 towards bank charges, 1 00000 towards a deposit and so on and if after all that 170,000 remained as surplus it was transferred to the current account.

Current Account was the only account for which the bank had issued any statement. Even that was riddled with such entries as “backdate correction” till date unexplained. The current account statement for the day would simply show an entry that said that Rs 1,70,000 was transferred from the export proceeds. It would not say anything about the total received and about what went where.

With this background in its accounting system, the bank moved DRT with virtually no details of the $ 1.5 million that it had received inward. It said nothing about any repayments that it had taken that exceeded 5 crores during the four years of operation. It said nothing about the interest charged or about the insurance premiums that it had debited to my account, It didn’t say anything about interest rates or the forex rates. It took a list of packing credit withdrawals for an arbitrary 9 month period without even showing the inward remittances for even that period of 9 months it so chose. The deliberately slipshod statement did not even show an opening balance and arrived at a total of 80 lakhs, levied interest on that and interest on that interest and called my company a NPA.

A petition for a comprehensive statement of accounts is pending for over 5 years with its own peculiar situations at the DRT that are hard to decipher.

The bank sits tight in its ability to continue to do harm, by the records that it had created. My company or I as a Director can not go to any bank or any other financial institution or venture capitalist for this or any other business venture, some of which are highly scalable and significantly profitable. Not only did the bank block my operations for the last 7 years but it persistently keeps us unable to do anything and make any form of progress. Some of the opportunities to venture into new fields foregone were so promising that my company ought to have emerged as a large enterprise.

Extensive, vivid communications have been sent to the RBI and the Finance Ministry during the last six years. The finance minister probably requires a problem to be a $100 million in minimum size to merit his attention and the Governor, RBI also doesn’t seem to take note of this problem.

I published a blog but didn’t bother to have it listed in search engines for visibility http://duediligenceindia.blogspot.com . It is not updated with the recent PDF sent to the Governor, RBI which is a 209 page documentation.

Consultants and Advisors or anyone I have turned have this as advise to offer: Bow down, drop the background, say yes to everything that the bank says and settle. Or even the rest of your life as a businessman would be gone.”

I am still resisting because it is so unfair