Coercive loan recovery tactics killing thousands
RBI must legitimise a system that makes lending and recovery mechanism operate in a fair, equitable and in an environment of justice – for the poor as well as for the rich
While defaulting farmers undergo misery and torture, the rich defaulters continue with birthday party bashes. Despite SARFAESI Act, debt recovery tribunals, insolvency and bankruptcy code (IBC) and one-time settlements, life goes on as usual for the rich defaulters. In fact, instead of living in stress and depression for massive loan repayments, the rich find it easy to get the benefit of haircuts and begin life afresh as if nothing happened
A few days back, farmer Mithilesh Mehta's eldest daughter, who was two month pregnant, tried to stop recovery agents of Mahindra Finance from seizing her father's tractor. She died after being mowed down twice by the agents. According to news reports, Mehta had taken a loan from the private finance company to buy a tractor. He had paid the instalments but it was during the pandemic that he faltered. Subsequently an agreement was arrived at with the company officials and he had even agreed to pay an additional interest on the pending amount. However, there remained a disagreement over a small amount of Rs 10,000. "What's the cost of two human lives," a distraught Mehta asked, adding: "It is just Rs 10,000." His daughter was a graduate, and had asked the recovery agents to show the 'seizure papers" before taking away the tractor. The ruffians challenged her saying: "Seizure list maangta hai, hathgadi chada denge (You ask for seizure list, will mow you down)."And they ran the vehicle over her. While the Managing Director and CEO of Mahindra Group has apologised for the tragic incident promising to investigate the role played by third party collection agents, the death of the young woman at Hazaribagh in Jharkhand has once again brought the focus on to the ruthlessness with which non-banking financial companies have been engaged in recovering the farm dues. Knowing that the financial position of farmers is not comfortable enough, the recovery agents use all kinds of abusive tactics to extract their pound of flesh. Because it involves financial services, the administrations as well as the concerned regulatory agencies safely turn a blind eye.
This is not the first time that the recovery agents have come under the scanner. In fact, it has now become an organised business with third parties specialising in the recovery business cropping up. Try getting a bicycle on loan, and you will get a first-hand taste of the high-handedness with which the recovery agents chase you. Nevertheless, it is well-known that most farmer suicides happen because of the humiliation that farmers suffer at the hands of banks, NBFCs and Micro-Finance Institutions (MFIs). In this case also, Mahindra Finance had knowingly taken the services of a third party specialising in recovering the outstanding dues and therefore cannot escape responsibility.
When an agent comes to take away a farmer's tractor or other machines against non-payment of dues, farmers finds it difficult to meet the probing eyes in a village, and often that leads him to take the extreme step. In one of the reports of the National Crime Record Bureau (NCRB), banks were rated as the primary reason behind nearly 80 per cent farm suicides reported that year. Banks and private money lenders often use recovery agents. In addition, banks have also been known to use blank cheque option to shift the non-payment of dues from a civil case to a criminal offence thereby inviting jail terms. There have been frequent reports of farmers being put behind bars for petty outstanding amounts. A few of them have reportedly died in custody.
This year, the Punjab government had withdrawn arrest warrants issued against some 2,000 farmers who had defaulted on loans from Punjab State Cooperative Agricultural Development Bank.
What remains questionable is why this special treatment for loan recovery is only reserved for those who are economically poor? Why the same third party services are not utilised when it comes to recovering the outstanding corporate dues? So much so that the Ahmedabad-branch of State Bank of India had earlier denied a no-objection certificate to a farmer who had an outstanding of just 31 paise. The Gujarat High Court had subsequently rapped the bank, terming it "nothing but harassment". But when it comes to the big defaulters, the banks are all game. According to a Moneylife report, quoting a CIBIL data, the scheduled bank's outstanding has jumped three times this year to reach a staggering amount of Rs 8.58-lakh crore in the past five years.
While the recovery agents killed the daughter of farmer Mithilesh Mehta, and that too for a paltry sum of Rs 10,000, there are 30,359 people against whom lawsuit have been filed by banks for recovering pending amounts exceeding Rs 1-crore each. Maharashtra tops the list, followed by New Delhi and Telangana. The total outstanding however is three times the outstanding that was recorded in March 31, 2017, which then stood at Rs 2.58 lakh crore. The question that needs to be asked is when recovery agents are considered to be an effective tool in loan recovery (as some say); and can be unleashed against farmers at will, why can't the same recovery services be applied against the big defaulters? Or, if lawsuit can be filed against the big defaulters, and as we know these cases will run for several years, why can't civil lawsuits too filed against erring farmers? Similarly, why should blank cheques be used against defaulting farmers and not against big defaulters? The fact remains, if farmers can be issued with arrest warrants for non-realisation of a pending instalment mentioned in a cheque amount, a similar strategy could also be applied against big defaulters. Different strokes for different people. While defaulting farmers undergo misery and torture, the rich defaulters continue with birthday party bashes. Despite SARFAESI Act, debt recovery tribunals, insolvency and bankruptcy code (IBC) and one-time settlements, life goes on as usual for the rich defaulters. In fact, instead of living in stress and depression for massive loan repayments, the rich find it easy to get the benefit of haircuts and begin life afresh as if nothing happened. If farmers too were to get haircut on their outstanding amount, a majority of farm suicides can be easily averted. But then, as we know, farmers are children of a lesser god.
Considering there are over 10,000 wilful defaulters, meaning those who have the capacity to pay but they don't pay back, and most banks are even reluctant to make public their identity, the Reserve Bank of India (RBI) must come down heavily to clear the banking system once for all of all the outstanding non-performing assets (NPAs). This is public wealth, and should not be treated as easy money. At the same time, it must legitimise a system that makes lending and recovery mechanism operate in a fair, equitable and in an environment of justice – for the poor as well as for the rich.
(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)