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Case Study: All Creatures Great And Small

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Ramakant Joshi pondered over all that was unfolding before him. As far as he knew, all this was complete nonsense. And he was not going to sit quiet. “I will raise dust,” he had sworn to his wife, who placed yet another betel leaf along with Rs 21 this time at the feet of her Vithoba. “The man forgets he is 75,” she whispered to the Lord, who stood akimbo on a brick. “You had better watch over him... I don’t even have a decent housemaid; if he falls ill, I will look after him, barobar aahe, but remember, you will get food from that Sadanand Vihar!”

Joshi used to be a senior auditor at Morro Group, and was known to have slammed many senior managers on ethics and fairplay. He recalled Atul Desikar, who was his junior assistant 15 years ago, and today a vice president in one of the NBFCs. Yes, he would enlist Atul’s skills in this case.

Calling Atul (via Morro), he said, “There is a matter that I want to initiate policy changes on… What is going on today is daylight robbery. Now I want to fight this till my last day on earth.” He went on to explain how in the name of growth, companies were behaving in a socially irresponsible manner. “Just because you have an MBA does not mean you confuse the common man with laborious forms and jargon! Otherwise don’t sell to him, no! Why pretend!”

There must be a story behind this, thought Atul.

They met for several cups of tea at Durga Parmeswari (known to veteran users as DP) in Mumbai’s Dadar-Matunga area. Both chose DP, for that is where Joshi’s students (including Atul) used to meet him on Sundays, in the early 1980s when he taught at an evening college nearby. Joshi favourite was DP’s masala toast. After 50 years, the dish remained surprisingly consistent, and his own appetite tops. (Later, of course, Atul would contort an eyebrow watching him wolf down two platefuls.)

Sharing the story and plight of the Jaikars, Joshi said, “It worries me that this is where we have arrived as a country after 65 years of travelling! I am surely missing something. You are with a fine NBFC... you also give loans and outsource debt collection to collection agents to recover assets by force? What is this!”

Atul: Oh no, sir! At Smee Finance, we don’t even give loans. Because of the related questionable situations it gives rise to, we had opted out of this product long ago. But yes, recent changes in the board have brought this back. Small artisans are good at their existing scale, but gauging their ambition and their drive to remain steady is difficult. They could overreach, and we would have to take a hit on the bottom line; or follow the fashion of recovery agents!
 
Joshi: But why agents, baba? How were we collecting from debtors at Morro? We didn’t use agents!
 
Atul: See, the cost of collecting debts is the highest if you do it legally. Litigation costs are a killer. The product itself is like that — you need scale, high margins and apparently simple documentation with an army of collection agents to pursue the borrowers. Litigation has to be avoided at all costs and there is also a risk of political interference. You will remember the loan melas that left many banks holding worthless paper of documentation?

Joshi: Yes, I do, and I have also seen how business is run. So let us not don false halos. What is your point?

Atul: Okay, let me show you how this product is driven and kept afloat. Those who lend are not doing so out of love or brotherhood. Once it was being done as a product offering. Today, it is a competitive, bottom line-lifter. That means both hook and crook. For scale, NBFCs train youngsters fresh from college, and give them stiff targets with goodies like high-end gadgets or even an overseas trip for high achievers. Result: oversell. Hype is created by anointing ‘today’s best performer’, giving him a special certificate... The poor bloke kills himself to sell more, wanting to remain in the limelight. But he is selling to the likes of Raghav Jaikar, whom he does not need to respect, who he need not service, who only builds his bottom line...
 
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That is the template we at Smee Finance will have to copy if we add this product. This is where we are undecided because it sets up the wrong road for competing and unethical practices. And these determine the norms for hiring and retention in this industry.

Atul went on to elaborate how some of his senior directors were unhappy with this plan. “Because the first thing that happens is that the voice of conscience, which should be present in risk management processes, is lost in the noise. Documentation, which is the foundation for processes, gets compromised; incomplete documents pour in and the operations team often gives in out of sheer fatigue. The race gets exciting beyond imagination...but with highly questionable processes developing.”

Joshi: You mean there is no management committee overseeing such things?

Atul: Committees are also hollow. Very often the papers reach them late for any meaningful scrutiny. And often, the members depend on fresh youngsters to do basic analysis, which can help them make some noticeable observations at the meeting. It’s finally such a rat race, it is alarming.

Joshi: I find this strange. Even then, surely regulators’ teams will easily spot this in the minutes during annual inspection?

Atul: Saaheb, regulators are doing far more than what they can possibly do. No one works harder than them. They issue guidelines with a belief that everyone will adhere. See, you can blame the police for not catching the thief, but you cannot blame the police for the thief’s desire to steal! Companies come with ‘the best legal minds’ — sorry, ‘best’ is when you are smart enough to breach the law. The farmaan to them is to enable companies ‘safely’ do what they apparently may not be able to.  And these bright minds work ruthlessly towards fat year-end performance bonuses! India has too much money saaheb, that is the problem...

Joshi looked disillusioned; the rot seemed too deep. Then he asked, “What about the management and the board of directors? After all, they are the guiding conscience?”

Atul: It’s a tightrope walk for them. They are answerable to all stakeholders, you see. Their mantra is growth... investors have to be kept happy!



Joshi: Arre! Keep investors happy by stealing from the small fellows?

Atul: Frankly, they are too small a people for anyone to worry about. Go anywhere… the small artisan is not anyone’s concern. Simply, the Jaikars of this world have to keep their eyes open and be careful when they commit their monies. Believe me, politicians and so-called social activists will not remain engaged long in this battle. Kaay sangoo... there’s nothing in it for them.

Joshi glanced at Atul’s business card and said, “Senior vice-president? Hmm... You watch your step young man. You are a student of Matunga... we carry a big chip on our shoulder about our moorings, samajhla na? Hmmm... theek hai, then tell me: do you have the patience for this small shimpi (tailor)?”
 
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Atul smiled and said, “Don’t embarrass me, sir. My father was a small clerk in SBI. We are grateful for our origins.Please tell me.”

And Joshi told him more about the Jaikars’ court case, the response of Ambara Finance and Murali Shivmoorthy the lawyer. Atul chewed his lip for a long time, then said purposefully, “Does Mrs Joshi still make those deadly kothambir chi wadi?”

Joshi rolled his Mid Day newspaper and whacked Atul in good humour. “Of course she does and she will be most happy that you still remember! Please come, the lawyer too will be there. Let’s see what we can do.”

Next day, even as he stepped out of the lift, Atul simply needed to walk in the direction of the high-pitched arguments to find Joshi’s home:

Joshi (to Murali): My point is, notwithstanding Jaikars’ lack of legal knowledge or even street smartness, is it fair to have forms only in English? Did not Raghav miss the ramifications of the entire loan process owing to not knowing English?

Then calling out to Richa, his niece, he said, “Find out how many English speakers we have in India.”  Richa got back with: 350 million users and 100 million core speakers.

Rane (banker): That is just 29 per cent! That means 71 per cent do not use English. How then can we run a system for only 29 per cent people! My view is that we must have English, Hindi, and the local regional language. Will it help? Can’t say because in most cases even literate and educated persons consider reading the fine print a waste of time, and think signing the documents is a mere formality. Then again, a copy of the documents is not given nor do borrowers insist on their right to a copy. The financier’s approach too is: ‘Sign on the dotted line or forget about the loan’.

Vartak (neighbour, banker): It might interest you to know the experience of a sitting high court judge who wanted a loan to buy a car for his personal use. Upfront, the NBFC asked him to sign in advance a declaration that said: ‘I am unable to repay the loan instalments and hence am voluntarily surrendering the car’. He refused to sign such a document! And they also refused to give him the loan! Ha ha ha. But just imagine, if this is the fate of a sitting high court judge, why are we blaming poor Jaikar!

Joshi: But how can a financier or a banker take possession of the vehicle for which loan is given, using force?

Atul: Unfortunately, he can. Because of judicial delays and securing justice being tedious, time-consuming and costly, most banks and finance companies have resorted to extra-judicial methods for recovery of dues. Surprisingly, there has been no protest.

Joshi: Arre Atul, in such high-growth India, an organisation in civilised society must decide: Do I wish to do business with integrity or not? Is civilised society my market or not?

Atul: Saaheb, it’s like this: All kinds of people take loans. Unfortunately, because there are a significant number who are out to cheat and defraud, we have to be stringent. Legally, we cannot differentiate between a criminal and a saint; anyone who applies will get the same review.

Joshi: Okay, tell me, here is a man who, you can see, has made a down payment of Rs 1.2 lakh. Does this not speak for him? Did not Ambara use its brains? Murali, why did your court not ask this? Will a man who has paid 1.2 lakhs risk it and defraud you? Should you not infer? Think! You boys have become addicts to law books and management nonsense!

Can you not create filters that eliminate the definitely-intending-to-defraud cases and care and respect the likes of Raghav? Does the largesse of liberalisation belong only to the rich to get richer? Why are you blaming the system? That same law has given you discretionary powers!

Legal or judicial process may be slow; then fight that, no? Why corner the small artisan? And how dare you use physical force? I am shocked that no regulatory body has slapped a notice on companies!
 
Murali: Totally agree. There are judicial pronouncements to this effect, but they remain on paper and the practice of employing musclemen and recovery agents continues; and these people usually know how to ‘fix’ the law and hoodwink it.

Atul (to Joshi): What do you want me to do, sir?

Joshi: Go, change the system!

Atul: That is easier said than done. Regulators take stern steps and come out with guidelines. What was intended to help business is unfortunately used to exploit small borrowers. Recall during our Morro days, we used to suffer distributors whose cheques bounced. Years later, we did get a law that ordered punishment for cheque bouncing. Yet, see how that very law has become a tool to harass small borrowers by demanding post-dated blank cheques and depositing them in advance.

Then entities get black-listed and new documentation policies are drafted. What happens then? Quickly, the blacklisted entities metamorphose into new entities — the same people run the new business and take help from brilliant lawyers to come up with compliant documentation and start all over again.

Joshi: When your son falls sick and medicines do not work, do you give up? Don’t you try new means?

Atul (very saddened): I know what you mean... the world is not what it was during your days, saaheb! Look, small borrowers have just been freed from corrupt small-time money-lenders, to be trapped by sophisticated ones in suits and boots. Both will coexist; the ones with surplus cash will seek to grow it and the ones with no cash will borrow. Our intention has to be to educate the borrower and be vigilant about the lender.
 
Joshi: Educate the wielders of law too! (Looking at Murali angrily) Law is held as much by you as by the Supreme Court! Go raise dust over this nonsense. You cannot sit still. How can a finance company registered in Mumbai, where the borrower also belongs and where the car loan was given, how can it file for arbitration randomly in Kolkata? You chose to ignore the arbitration because the arbitrator was not chosen through consensus. But was it not oppressive of a minority? Arre zaoo de! What do you mean it is valid in law! But is it fair? Is it fair? The primary tenet of law is fairness! What does your buddhi tell you? Did the judge query this? This is tantamount to oppression of the weak. It is a devious design with an intent to harass the borrower and nullify his attempts to defend himself. Should you not challenge it?

Atul: Saaheb, some of the NFBCs are working on creating fair systems...

Joshi: Nahin re baba, don’t tell me ‘they are working on this’...show me results! If not, quit your profession! Hanh, both of you!  

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(This story was published in BW | Businessworld Issue Dated 06-05-2013)