Why this blog ?

...

I have a problem.

I have a good network of friends and advisors who are willing to spend time to solve my problem. But all of them say " Come back to me without the problem, I will solve your problem"....

This is a situation where my company, a company that has had a very prosperous start and ample growth opportunities, had a banking problem with a small commercial bank with an irregular branch in a small town, which reversed all the progress that the company made, blocked all futher progress and when appealed for attention ignored the appeals and when represented to Government declared the account an NPA, moved court, intransigently refuses to furnish transaction details, and prevents the company and the Directors from doing business with any other bank, which in effect prevents us from doing business. The banking system keeps us incapacitated even to fight for a fair hearing.

Good friends who advise us repeatedly caution me that it is very very difficult to start any kind of business unless we agree on a settlement.

Which makes me all the more resistant to the idea of dropping the issue which is fundamental:

How can the banking system and the regulatory authorities take all reports from all banks on NPAs without due scrutiny, and how can the system at large be so harsh on the so called NPAs without going into the background of what caused such a status?

The judicial system has taken almost 4 years to begin to understand that the bank has to furnish detailed accounts (the particular branch had a chaotic system of accounting in a situation where two subsequent branch management were remarkably irregular, to say the very least) and all other banks refuse to take up this account, or look at proposals for new, even more promising ventures, dismissing our approach prima facie, on the grounds that our account with Federal Bank is an NPA.

The banking sector doesn't go into the details and perhaps find it convenient to silently support the bank largely at fault.

Here is a summary of the problem:

• Name of the Company: Whitefield Cottons P Limited
• Name of the Bank: Federal Bank Limited, Erode, Tamilnadu Branch
• since: March 1996 Limits: Rs 80 lakhs pre-shipment export packing credit (PCL) and Rs 120 lakhs of post-shipment export credit (FUBP)
• Liablities outstanding: 80 lakhs (US $ 190,000 approx) of principal, unsubstantiated, NO clear, legible accounts from the bank, which has been dodging for the last 4 years, repeated requests for a compreheinsive statement of accounts made at verious levels of the Bank Managment and through court, plus exaggerated interest.
• Security: Collaterals of actual vaue in excess of Rs 120 lakhs + personal gurantees by the Directors. Guarantee by a a family member who is harassed by the bank with misinformation, who in turn harasses the Directors and forces them to rush for a settlement.
• Performance of the Company: 98% of the company’s revenues in export earnings; over US $ 1.5 million in production exports in the first 4 years, in the absence of production infrastructure, an average credit limit of $ 100,000, proceduaral hurdles and several other limitations.

Clean banking transaction record, ample and valid collateral securities and guarantees, 95% exports against irrevocable letters of credit, all realized without any problem, all proceeds routed through the bank direct from the Customer's overseas bank.

General Background:

Our company had a very good start. A direct export order form a large Canadian company, against an irrevocable letter of credit from a first class bank . We went to Federal Bank that gave us 15 lakhs ad hoc against guarantees and collaterals. We made an estimate of our requirements, asked for 75 lakhs. Over the next two and a half years, the bank confirmed the ad hoc limit of Rs 15 lakhs to a permanent limit of 15 lakhs, then 20 lakhs, then 25 lakhs, then 38 lakhs ad hoc, 45 lakhs permanent, 60 lakhs, and after two and a half years it met our requirement of two and a half years ago.

During these two and a half years we were met with several procedural hurdles and two bad, very bad branch managements that included two officers charge sheeted or internally reprimanded for blatantly corrupt practices and for frauds that compromised on the integrity of the customers' accounts. With all the banking procedural problems and delays we were performing very well as an exporter and our performance improved from US $ 106,600 in 1996-97 to US $ 473,476 in 1998-99 a four-fold growth of performance in 3 years.

This could have been far more if the bank had been professional and if the branch administration was clean in its assessment and service.

Banking Problems:

1. The bank Refused to consider a promising proposal for creating manufacturing facilities.
2. The bank blocked us from utilizing a term loan of Rs.1.5 crores sanctioned by the State Industries Promotion Corporation of Tamilnadu Limited.
3. The bank took our 180 days to partially concede to our requirement as PCL of Rs.75 lakhs.
4. The bank took 700 days to fully sanction our requirement in full, by white time the sanction was too little.
   The bank prevented us from moving to any other bank which could have more responsive. Our company is based in Erode, a small town, where such restrictive measures were locally possible.
5. The bank hurt a major export order for US $ 803,750 placed by our regular buyer who had established a buying record well known to the bank, in spite of our repeated request for assessment of this highly time sensitive situation. At that point of time our limits were Rs 80 lakhs of Packing Credit and Rs 105 lakhs. The Packing Credit was fully utilized while all the bills purchased by the bank had realized, but the bank did not offer us the flexibility by considering the unitized portion of the post shipment limits usable. Nor did the bank allow us even the marginal flexibility of exceeding the sanctioned and kept our account "frozen" rigidly at Rs 80 lakhs, not allowing us to exceed the sanctioned Packing Credit limit even by a fraction. With this impossible situation the export order of US $ 803, 750 could only be partially executed, that too with market borrowings forced upon us by the situation, which was also not sufficient, so the production was delayed, quantities ordered were reduced and finally the order was largely cancelled. As a result our progress began to reverse, and our company's finances were severely damaged. The bank watched us degenerate and collapse without even acknowledging that its Erode Branch has hurt a customer so badly.
6. The bank has done more serious damage by keeping our account frozen at Rs 80 lakhs, due to this refusal our business came to a standstill during the last four years with prosperous opportunities for growth and profit foregone and the losses are increasing.
7. The bank blindly refuses to evaluate our requirements, problems and prospects in spite of various repeated requests for a comprehensive understanding of our problems and prospects.
8. During the last six years the bank has been completely silent on its role, refuses to acknowledge any communication from us to its Chairman or other officials.
9. The bank has not provided us with a comprehensive statement of our transactions after repeated requests from us. The bank's accounting system at the branch was very vague, it accounting format was confused and the bank is very reluctant to furnish us with a comprehensive statement of accounts. The need for a comprehensive statement of accounts is significant in the light of all the fraud that happened at the Branch that compromised on the integrity of the accounts at the Branch. [ Even at the DRT the bank has been evasive on our repeated petitions for a statement of account for over 36 months.]
10. During the first four years of operation the procedural hurdles and delays at this bank limited our growth prospects in terms of establishing manufacturing facilities and accepting larger export orders. During the last four years whatever little progress that was made during the first four years was reversed, which caused considerable erosion of our inventories and other resources which left us crippled.
11. There were various ways by which we were affected. Our work in process of that time was rendered unusable midway due to the situation forced upon us by the bank's total disregard for our needs and the way it kept our account frozen. There were various other practical business factors that come into play when flow of resources were blocked. For instance alternative market borrowings that were forced upon us by the situation was prohibitively expensive. The quality of materials purchased with contingent market credit could not be assured. Time delays were expensive with a multiplier effect. One major problem lead to a multiplicity of problems and the losses multiplied, our various resources decayed during the last three years and the combined effect is such that it absorbed the money invested in stocks and work in progress.
12. The bank was completely unwilling to allow us to move to any other bank that had a good understanding of our clean transaction record and prospects, nor did the bank allow us to create the manufacturing facilities required with Term Loan assistance from supportive term lending institutions.

Present Status:

The company's account remains classified as an NPA for the last 4 years. The company approached several banks, term lending institutions and venture capitalists all of whom are uncomfortable with the status and the history of the company's representations to various levels of management at the bank as also to the RBI and the Ministries.

A case filed by the bank at the DRT is slipshod in description and unsubstantiated as it conatains no details of how the liability was arrived at. A petition filed at the DRT for a comprehensive statement of accounts is very very slowly progressing with the Presiding Officer not posted in DRT Coimbatore during a 2 year period, and now as the petition won an appeal at the DRAT for another hearing, all cases at DRT Coimbatore are moved to DRT Madurai....As on April 9, 2007 the DRAT's some what favorable order has not been taken up by the DRT, because of the delays in the jurisdictional realignments within DRT, which has finally not taken effect.

The NPA stautus that was accorded on the company without due scrunity of the bank's role in causing it, cripples the company, keeps the company from any banking facility from any bank, financial institution or private equity fund, which in normal circumstances would have built up this company into a very valuable, high growth company...

The Directors have shaped up new ventures that remain unbankable due to the NPA stauts of this company....

This is the misinformation. The NPA status and how the status is circulated among banks, investors and other financial institutions, in complete suppression of the bank's role in first limiting and finally reversing the progress that the company, and in complete suppression of the facts relating to all the damages that the bank has caused...

The practical advise that I receive is "Give up your scrutiny. Pay up. Whatever the bank wants. Get out of the NPA status..." This happens to be from a very good friend, who knows the banking system in and out, who has been exasperatedly trying to help me. He knows that that is the only thing that I can do. He perhaps knows that the banks would gang up against me if I fight a legal battle against one of them. And How do I pay up? 1. You have caused my business to close down. You have kept me incapacitated. You have caused all that I built up to evaporate into nothingness.

( In business a strange kind of arithmetic happens, in times of trouble. For e.g

Losses at the beginning of the year : 10 lakhs.
Expenses during the year 10 lakhs.
Revenues 0.
What are my accumulated losses at the end of the year ?
Arithmetic and Logic says 10+10-0 equals 20, so the accumulated losses is 20 lakhs at the end of the year.
WRONG.
That is not what happens in times of trouble.
In times of trouble the total of 10+10-0 actually amounts to a mysterious total of 40 or 50... .
Imagine what happens if a company is forced to stay in this situation for over 6 years ? )

So

• What resources can the company be possibly left with and where does it go after 6 years of incapacitation forced upon it?
• The bank and the banking environment has blocked the company and individuals from regenerating the business or restarting any new venture.
• The company does not have the resources, I don't have the resources, the family comes in. In India, family plays an integral part of any business, proprietary, partnership or incorporated. First the family writes you off in times of trouble. Then the family offers to dissolve one of the properties to pay up... In my case, the resources are not from my own family and I don't want to draw resources from the guarantor, in order to dissolve a liability that was unfairly built up and cleverly exaggerated. The bank misleads the family, which is a crucial non-business factor in Indian business, by misinformation which amounts to professional, crafty psychological pressure on the gullible.
• Dropping this issue is unfair. In a more defined legal framework, the damages that the legal system would consider would amount to what the bank can not bear. This company is in India and the tort reforms are yet to happen. Any company faces these judicial limitations.
• What if I make the unfair decision of dropping the issue with little regard to the immeasurable damage that the situation has caused me? What if I allow one of the family properties to be dissolved and allow them to pay up?
  

a) The banking system wouldn't set the NPA record straight as swiftly as it brought in the status. The process of removing the status will take 3 years at least ? and
b) Even if an Angel of a banker says yes to a new venture, the family at the background says, no more of business ventures....

This NPA status is this unfair.

So this blog, titled " Information". It is unconventional, but if there is an alternate way of balancing or countering the misinformation that goes by a generalized ranking dubbed "NPA", I wouldn't have published this in a blog.

The present status is that an application is sent to RBI under the Right to Information Act to gather information pertaining to the status of the company and its Directors, and a notice to the bank under the same act to furnish the statement of account that it has been intransigently evading for the past 5 years now.

http://duediligenceindia.blogspot.com/2007/01/rti-application-sent-to-rbi.html

Some documents sent to RBI and the Bank and to the Ministries that summarise some of the problems are posted in this blog.

RTI Applications sent to RBI and Federal Bank

Monday, January 22, 2007
(Sent in company letterhead, rejected on the grounds that RTI Act does not cover companies, so reapplied again as an individual on February 15, 2007 with fee.)

From

Whitefield Cottons P Limited
389/1 Perundurai Road
Erode 638011
Tamilnadu India
Tel ++91 424 4030334
++91 93641 00639
whitefieldcotton@gmail.com

addressed to:

Shri N P Topno
General Manager designated CAPIO under RTI Act
Department of Banking Supervision
Reserve Bank of India
Central Office, Centre 1,
Reserve Bank of India,
Mumbai 400 005

Shri D P Sudhaker
General Manager designated CAPIO under RTI Act
Inspection Department
Reserve Bank of India
Inspection Department
C-7, 7th Floor
Bandra-Kurla Complex
Reserve Bank of India.
Mumbai 400051
Telephone 022 26572301

Sub: Information Requested under the Right to Information Act

Ref: Our letter dated 27 November 2004 addressed to the Executive Director, Department of Banking Operations and Development / Banking Supervision, RBI; Your letter RBI IECD No 4329 / 04.02.03 / 2003-2004 dated March 25, 2004 sent to PDEXCI; minutes of the meeting with us at the office of Mrs Makhija, Chief General Manager at her office at Mumbai on 29th March, 2004; Our letter dated September 2, 2003 addressed to Smt. P.K. Makhija, Chief General Manager, Industrial and Export Credit Department, Our email messages sent to The CGM and Executive Director on August 31, 2003; Our complaints to the RBI on March 1, 2002, our complaint with Banking Ombudsman filed on August 28,2002, our email dated August 31, 2003, various other letters and email messages from Power loom Development and Export Promotion Council (PDEXCIL) and Whitefield Cottons P Limited on the same subject on various dates.

Please provide us the following Information:

1. Details of the dates of RBI's inspection of Federal Bank, Erode and details of the other offices of Federal Bank inspected based on the above complaint, names and designations of RBI officers who formed part of the inspection team.
2. A copy of the Inspection Report (s)
3. Details of documents examined at the Erode Branch and other offices of Federal Bank; Details of records examined of the Bank's internal investigations of two of the officers whose irregularities / frauds compromised on the integrity of the accounts at the Branch.
4. Details of all communication from Federal Bank received by the Reserve Bank of India concerning Whitefield Cottons P Limited
5. Information whether Federal Bank declared Whitefield Cottons Private Limited is an NPA and if RBI had approved such a status declartation; If so, copies of all reports that RBI had taken into account in according such a status.
   Information whether Whitefield Cottons Private Limited is in the RBI list of defaulters. If so, copies of all reports that RBI had taken into account in according such a status.
6. Information whether the names Muthusamy Sivasubramanian (or as Sivasubramanian Muthusamy ) and Umamaheswari Sivasubramanian (or as Umamaheswari Sivasubramanian or as Jagadisan Umamaheswari or as Umamaheswari Jagadisan) are in the RBI list of defaulters. If so, copies of all reports that RBI had taken into account in according such a status.
7. Copy of RBI's General and Special directives restricting commercial banks from entertaining applications for different forms of credit from companies / individuals listed in the list of NPAs / defaulters.
8. List of Credit Appraisal Bodies (such as CRISIL and SMERA) in India and various credit appraisal bodies abroad among whom RBI's list of NPAs and defaulters is circulated.
9. Details of procedures adopted by RBI to lift the NPA status of a company / Defaulter status of a company and its Directors, hitherto classified as an NPA / Defaulters and the removal of individuals' names from the list of defaulters, when the liability in question is cleared or disproved or annulled.
   

Thank you.
For Whitefield Cottons P Limited


Muthusamy Sivasubramanian
Managing Director Page 2 of 2

Sunday, 18 February 2007

Muthusamy Sivasubramanian
389/1 Perundurai Road
Erode 638 011
Tamilnadu


The Deputy General Manager
Bhattad Tower, I Floor,
30,West Cott Road
Royapettah
Chennai 600 014
Phone No: (044) 28587516


Sir,

Sub: Information required under the Right to Information Act of 2005

Ref:

Email message from from cotton@whitefieldcotton.net sent on 7 July 2002 on the subject "Request for a comprehensive statement of accounts" to federd@md4.vsnl.net.in with a copy to padmakumar@federalbank.co.in
Letter from Assistant General Manager, Federal Bank dated 18 th July Ref No GAD/S32/MDS 649/02

Email message from cotton@whitefieldcotton.net to federd@md4.vsnl.net and padmakumar@federalbank.co.in dated 19th July in reply to your letter GAD/S32/MDS 649/02
Various other communications from M/s Whitefield Cottons P Limited to Federal Bank on the above subject.

I, as an individual, and as a person with responsibility as the Managing Director of Whitefield Cottons P Limited, Erode, apply for the following information:

Statement of Accounts:

• A comprehensive, integrated statement of accounts of various interlinked transactions of the PCL, FUBP/FDDP/RABC, Current Accounts No 5893&5986 and Deposit accounts in the name of the Company/Directors of Whitefield Cottons P limited Erode with Federal Bank Erode since May 1996 clearly and legibly showing date wise
• Details of all packing credit loans released to Whitefield Cottons P Limited, datewise.
• Rate of interest and periodic interest charged on Packing credit loans
• Other charges on account of packing credit loans.
• Details of all Export Proceeds routed through your bank since May 1996 with clear and legible break up of how the proceeds were internally transferred between accounts such as FUBP/FDDP/RABC/Current Accounts, how the proceeds were broken up into internal adjustments of PCL Repayments, PCL Interest, FUBP/FDDP/RABC interest, bank charges, debits towards ECGC premiums from the bank, money withheld by the bank in the form of deposits in the name of the company Whitefield Cottons P Limited and its Directors Muthusamy Sivasubramanian and Umamaheswari Sivasubramanian, details of amounts paid out from various accounts of Whitefield Cottons P Limited and from the savings accounts of Directors Umamaheswari Sivasubramanian and Muthusamy Sivasubramanian on various dates, datewise, particulars of all other bank charges and explanations to entries such as "Backdate Correction" as seen in Current Account statements, with legible.
• The net date wise debit and credit balance of the period since May 1996 in the account of Whitefield Cottons P Limited.
• Copies of all reports, explanatory communication and defensive statements sent by various offices of Federal Bank to the Banking Ombudsman, various departments of the Reserve Bank of India, various ministries of the Government of India on various dates concerning Whitefield Cottons P Limited
• A copy of the Memo from the Regional Office, Chennai to the Bank's Head Office reporting administrative irregularities by Mr Gnanadurai Balraj, Senior Manager, Federal Bank during 1997-2000, based on which memo an investigation was carried out by the Vigilance Department of the Bank. Copy of the entire investigation report or extracts of the investigation report pertaining to reference of how accounts at the branch were compromised by the administrative irregularities.
• Details pertaining to internal and external investigations of fraud/irregularities on the conduct and integrity of Mr Rajan George, designated Officer-Foreign Exchange at the Erode branch with details of findings pertaining to how the integrity of the accounts at the branch were compromised.

Thank you


Muthusamy Sivasubrmanian
Erode

Encl: Prescribed fee of Rs 10 by UTI Bank, Erode DD No 30213 dated 14 Feb 2007.

27 November 2004 to RBI

Smt Usha Thorat
Executive Director
Department of Banking Operations and Development / Banking Supervision
Reserve Bank of India
Central Office Building
Mumbai 400 001

Dear Madam,

Sub: Our Unresolved complaint against Federal Bank Limited from Whitefield Cottons P Limited.

Ref: Our complaints to the RBI on March 1, 2002, our complaint with Banking Ombudsman filed on August 28,2002, our email dated August 31, 2003, letter from Powerloom Development and Export Promotion Council (PDEXCIL) dated August 16, 2004 and Your letter RBI IECD No 4329 / 04.02.03 / 2003-2004 dated March 25, 2004 sent to PDEXCIL in response to their letter dated August 16 2004.

To follow up on our representations to the Reserve Bank of India on our various problems with Federal Bank, which caused a complete reversal of our export business prospects and halted our operations, I met Mrs Makhija, Chief General Manager at her office at Mumbai on 29th March this year.

On this occasion the various DETAILS including the Administrative Staffing history of the bank's Erode branch were narrated to you in detail. After nearly about an hour of patient listening, your position was that two inspections were done on the branch, which was extraordinary action on the part of RBI, so RBI had acted on the complaint, and beyond this "RBI is helpless".

This was the third instance of discouragement by the Reserve Bank of India on our plea for a solution to our problem with Federal Bank.

First we brought this problem to Reserve Bank of India on March 1, 2002 with a copy addressed to the Union Finance Minister. Reserve Bank wrote to us "we are not in a position to intervene as the matter pertains to credit dispensation" also observing that the account had already slipped into NPA category. Our complaint was not a simple one to be so dismissed. It was just that the bank had squeezed us into this NPA status.

Subsequently we complained to the Banking Ombudsman, Chennai on August 28, 2002. Our complaint was that Federal Bank had wronged us, blocked and reversed our company's progress and kept us in a state of total helplessness. Banking Ombudsman did not take up the complaint with the explanation that "loan transactions are commercial judgment and at the discretion of the sanctioning bank and hence do not come under our purview in terms of the Banking Ombudsman Scheme" vide its letter BO(CHN)/2580/PR 051/2002-2003 dated 9th September. We promptly pointed it out that the complaint was not about the commercial judgment of the bank.

On these two occasions there was complete refusal on the part of Reserve Bank of India even to read the complaint in full, and the case was dismissed on assumptions that the case concerned the bank's commercial judgment.

It was elaborately pointed out to the Reserve Bank that the case was not such a simple one. And after several requests including our detailed communication addressed to the Executive Director and other officers including Mrs Makhija on August 31, 2003, Reserve Bank of India looked into the complaint and inspected the branch.

We do not understand the following:

• When a complaint of this nature was investigated why were we not asked to explain our case, to counter the bank's defensive attempts to suppress documents, facts and misrepresent the situation?
• An inspection of the branch would have happened but what possible records would the bank have made available to the RBI inspectors?
• Why were we not asked to submit copies of our records of dates of applications, letters written to the bank and other relevant documents?

The bank must have selectively furnished some papers to show that everything was in order. The bank was comfortably allowed to misrepresent facts and the bank's erroneous version of what it did to us some how found its way to RBI's records, enough for RBI to send out a letter of inaccurate observations.

The letter RBI IECD No 4329 / 04.02.03 / 2003-2004 dated March 25, 2004 declared the file closed after making inaccurate, unverified comments based on its inspection of whatever papers that the bank would have made selectively available for RBI inspection. The bank was conveniently allowed to comfortably defend its case with choice papers from its file, we were never contacted by RBI, our papers were not called for, there was not even a phone call from RBI to us to verify the bank's version and whatever misrepresentations made by the bank were placed on record by RBI which culminated in a letter that said the case closed.

After explaining the limits in the scope of RBI's authority, the letter goes on to record that it has examined my "allegations" in detail and that the bank "had extended ad hoc limits to us...", there was "possible diversion of funds", that the examination "did not reveal any apparent contravention or violation on the part of the bank" and that "the allegations about delay and inadequacy in the limits sanctioned by the bank were not supported as per records [ that the bank would have made selectively available ] of the bank.

1) There was no diversion of funds: We have invested our DEPB and Drawback proceeds of approximately Rs 40 lakhs over 3 years to construct a factory building, buy industrial land, machinery. This has been well within the knowledge of the branch and the bank and has been mentioned by us in our communication to RBI on March 11, 2002 for which a copy was eventually sent to the bank’s chairman. This has been stated again and again as part of the case history forming part of our complaint and this has been completely left unread and the Reserve Bank of India made an observation that there was "possible diversion of funds". Is this the bank's only defense to avoid or block scrutiny by RBI ?

2) Inventory position was as per norms before the bank froze our account, inventory position was never an issue. If there was any inventory loss, it happened long AFTER our account was frozen and not before, so this was not a cause, but rather an effect. When the account was frozen it was pointed out to the bank time and again that stocks with various vendors in half-finished condition remained unrecovered. What little was recovered were unusable and any little proceeds by necessitated sale of any portion of the wasted stocks were consumed for the company's needs, in the cash-crunch situation that resulted due to the bank's hostile attitude that froze facilities. This happened long AFTER our account was frozen and not before, so this was not a cause, but rather an effect. The bank is confusing the sequence of events here.

3) The bank is refusing to furnish a comprehensive statement of accounts in spite of several requests since July 7, 2002. The bank's accounting procedure was not in order, there is no statement of credit entries and interest debits and the bank is dodging this request for over 2 years now. NO PCL, FUBP STATEMENTS HAVE BEEN ISSUED SO FAR, NOT IS CLEAR HOW THE BANK ARRIVED AT OUTSTANDINGS. This has been mentioned in our letter to RBI, and no directive has been issued to the bank. RBI hasn't verified why the bank is taking over two years to issue a legible, comprehensive statement of accounts. It is important for us to know this especially in the light of the branch’s administrative history.

4) RBI has not made any note of anything about the management scandals at this corrupt branch and about how it affected our account, nor has the RBI made any observations about the bank having blocked other banks from taking over our account. The branch has had a corrupt administrative history of two successive branch managements legally or internally punished which by itself is an indication of various branch level hurdles the company faced which led to all the hardships. Reserve Bank dismisses this as an internal matter.

5) The bank's ad hoc limits were so called ad hoc, but followed rigid documentation procedures and took months to be sanctioned in most instances, often termed ad hoc as an act of convenient paperwork, that kept it both non-committal and pending. Enhancement procedure for our export account took 6 months for partial sanction and as much as 700 days for sanction as requested, by which time the limit sanctioned had become too little, too late...

6) The inspection done at the branch was one sided. There was no inspection of our records - the application copies, correspondence, our repeated pleas to the bank on various dates were not examined. The bank suppresses a lot of records and selectively presents papers to justify its position.

7) There are no directives to the bank to give us a way out of this unfair situation. The letter concludes by saying that it is not within the ambit and scope of the authority of the RBI to consider our counter claim etc. The RBI regrets its inability to intervene in the matter of our grievance against Federal Bank.

All that Reserve Bank of India has done so far on this case is to protect the bank. So we had sought the help of Powerloom Development Export Promotion Council of which we are a member, and PDEXCIL felt it appropriate to write to the Reserve Bank of India again. After a time gap Reserve Bank of India repeated the reply that the case is closed.

Reserve Bank has closed the complaint without offering any solution to us in the face of an unfair situation wherein a bank caused a company's stagnation, covered its faults by reporting the account as NPA, which keeps the company in a state of ineligibility for necessary funding and in a situation of complete helplessness.
But the summary of RBI's position is that RBI is helpless.

We are surprised that whatever authority it has is directed against business companies and in favor of the bank. RBI's rules give an upper hand to the bank in this situation. For instance our account is classified as NPA irrespective of the fact that it is the bank that caused it. By using this provision to brand our account as NPA the bank keeps us in a state of no options. Even the legal framework is conceptually biased in this matter. The Debt Recovery Tribunal which has been established, as the name implies, has the object of recovering debts and with this purpose, the faults of the banks are not looked into in detail. Counter claim procedures are such that it is prohibitively difficult for any company from making a fair and just counter claim.

Under the circumstances our request to RBI in this situation is as follows:

1. We request thorough scrutiny and a solution. PDEXCIL has requested action against the bank under provisions of Para 1.3.3 of your circular No BOD.IECS.NO24/04.02.02/2004- 2005. Timely extension of credit facilities to Exporters has NEVER happened at Federal Bank in our account. The bank's procedures were cumbersome, its policies and practices were restrictive, the bank took months to partially meet our requirements and took as much as 700 days to grant us an enhancement of 75 lakhs, by which time the sanction was too little too late as also locally prevented at least two other banks from extending us the required facilities, when our account was attractive for the other banks. The provisions of Para 1.3.2 of your circular are equally applicable in our case as the bank did not extend us the term loan requested and when we obtained a sanction from from SIPCOT for Rs 1.5 crores, the bank became very uncooperative, which was one of the prime reasons why the term loan was surrendered unutilized after documentation and payment of upfront fees which amounted to completion of all formalities.

2. As an interim solution pending outcome of a thorough and complete investigation into our case. RBI may please remove our company name from the list of NPAs because it is the bank which caused this situation. Because of this unfair status, our company is unable to approach any other bank for our export credit needs and hence unable to accept export orders for the past 3 years.

3. Please enable us to make use of the Technology Upgradation Fund for modernization, which again is blocked because of the fact that our account continues to be classified as an NPA, due to the fact that our account is trapped with Federal Bank as inoperable.

4. Please pay attention to our case in detail and offer us a banking solution to our company, which continues to receive an influx of export orders that can not be accepted for want of funds. We require export credit from any other bank, which is fair and square.

5. Please look into unfair provisions such as DRT's counter claim procedures that overly protect banks and keep affected companies crippled. We request RBI to recommend to the DRT for a waiver of any fee payable and make it possible for us to press our counter claim as sent to the Bank's Chairman vide our letter dated July 17, 2003 to be revised to include continuing damages.

Thank you.
For Whitefield Cottons P Limited


M. Sivasubramanian
Director.
Tuesday, November 16, 2004
Cc to

The Governor, Reserve Bank of India.

Shri B P Sudhakar, Powerloom Development and Export Promotion Council

Inadequate Book Keeping and Convenient Misrepresentation by the bank

Whitefield Cottons P Limited has had its export credit account with Federal Bank since 1996 with Packing credit withdrawals of about Rs 5 crores and realized export proceeds that were internally adjusted towards repayment and interest amounting to an amount in excess of US $ 1.5 million.

The branch had a chaotic system of accunting, and did not furnish a statement of repayments adjusted and did not produce any legible statement of interest and bank charges.

The company has been communicating, in writing since July 2002, asking the bank at all levels for a comprehensive statement of account. The bank has been dodging this basic requirement, which is a matter of fundamental right to information by the account holder.

The bank rushed to court in defence with a slip shod statement of accounts from an arbitrary date of the year 2000, a two column statement showing details for one column - loans released, with no details on the other column - repayments mad ( internally adjusted from export proceeds realized ), totalled up a sum of principal and interest amounting to Rs 1.24 crores, and expects the Judiciary to award an order for recovery. The liability is not proved, the bank presented a completely one sided history and the bank totally suppresses all particulars of export proceeds routed through the bank that exceeded US $ 1.5 million.

The following is a document in file that contains arguments prepared on the need for a consolidated statement of accounts. This document is an internal note ( note prepared and sent to the Legal Counsel as input to prepare a petition:

OA 268/03

01 The defendent and petitioner reiterates all the averments in the petition/affidavit filed on 18.12.2003 and repeated on october 2003

02 The defendant company questions the validity, truthfulness and accuracy of the respondent's application against the petitioner at the DRT for realization of a total amount of Rs 1.24,14,848.00 as it is not tallied to show loans and repayments to arrive at the claimed figure of Rs 1,24,14,848.00. All that the respondent has filed a statement of Packing Credit Loans released to the defendant on various dates in such a way that the total is 1,24,14,848.00. Such a list of packing credit loans, can show any amount, be it 1.24 crores or multiples of it as the respondent fancies because the table shows loans said to be released wilfully and misleadingly omitting all repayments made during the corresponding period. On this and on several other counts the respondent's application misleads the Debt Recovery Tribunal.

03. The defendant reiterates the averments made in para 3 of the Affidavit of the petition. It was stated that the OA filed by the Bank and the claim raised therein are highly imaginary and exaggerated. It was further stated that the claim statement is devoid of documents and in suppression of essential reports, papers and statements. The defendant reiterates the averments and elaborates as below:

a) The false basis of the original application 268/ 2003 dated 25.08.2003 the responant is a statement that shows Packing credit loans released to the defendant company during 05.7.2000 and 22.03.2001. The applicant bank has produced this record which shows packing credit loans released but does not show and wilfully and maliciously omits REPAYMENTS DURING THE SAME PERIOD. During the same period repayments by way of export proceeds routed through the FDBP account exceeds Rs 68 lakhs, the exact amount to be stated before the tribunal only after the respondent furnishes the statement of accounts.

b) The application filed by the respondent does not show ALL LOANS AND ALL REPAYMENTS DURING THE LENGHT OF THE BANKING ARRANGEMENT- the one sided statement of loans for an arbitrary period contravenes all principles of accounting and violates the basic norms of accounting. The applicant bank has not shown any history of repayments by the defendent and interests levies taken from the defendant's account. The application misleads the Tribunal by completely suppressing an amount in excess of Rs 600 lakhs of remittances (about as much as US $ 1.5 million, mostly in US dollar denominated receipts) to the bank by way of export and local sale proceeds, the exact amount to be stated before the Tribunal only after the bank furnishes the detailed and comprehensive statement of accounts.

c) The packing credit facility extended by the respondent is merely one component of the defendent's banking arrangement with the respondent. The Packing Credit facility was interlinked with another facility known as FUBP facility, which the bank conveniently modified from time to time as a FDDP facility or RABC facility arbitrarily and as it fancied fit, though which the defendent remitted all Export Proceeds in excess of Rs 600 lakhs (Total export and local sale proceeds routed exceeded this amount). The bank deducted an interest for the FUBP/FDDP/RABC facility, deducted an interest for the Packing Credit Loans, took away a part of the proceeds as Bank Charges and Bank Commission, other charges, moved an amount equivallent to the all the remaining amount of the Export Proceeds through FUBP/FDDP/RABC towards repayment of outstanding Packing Credit Loands and at times transferred a percentage of the FUBP/FDDP/RABC proceeds to a Term Deposit Account.

The defendant company's pre-shipment fund needs were meant to be financed by the applicant bank by the facility called a PCL A/c (Packing Credit Loan Account) with the applicant bank. The PCL loans were utilized to fund the company's production and other needs. Peiodically, upon requests from the defendant the applicant bank would release a PCL loans by transferring the requested amount in the defendant company's Current A/c No Cd 5893. The applicant bank did not have the practice of issuing a Pass Book for this account, nor did it issue periodic statements of withdrawals, interest taken, repayments debitted and bank charges. Total transactions so far about Rs 5 crores of PCL withdrawals and automatic repayments (adjusted from Export Sales proceeds realized through the bank accounts) of a corresponding value.

After the applicant bank transfers the Packing Credit Loan to Current A/C CD 5893, the defendant company would withdraw the required funds from this account to the extent needed for its production and other requirements before shipment. After shipment, the company produces all documents (as per Letter of Credit) to the bank which PURCHASES the documents at a foreign currency value fixed by the bank, and the the value of Export Bills PURCHASED by the bank and the proceeds adjusted for repayment and finance charges. The applicant bank did not issue a passbook for Current A/c CD 5893. Computerized statements were issued on request. The statements show PCL released, but not PCL repaid. The applicant bank paid out an insurance premium to Export Credit Guarantee Corporation to protect the money it advanced to the defendant company. Some of the ECGC Insurance installments debitted are shown in the statements of accounts, but not all ECGC installments debitted are shown. Sometimes PCL Interest / FUBP interest taken are shown but without details. Not all PCL interest taken are shown. Totally about Rs 5 crores of PCL loans inwards, about 6 crores of payments made outwards were the transactions, which require complete particulars.

The applicant bank purchased the defendant company's Export Sales Revenue in US dollars at an exchange value as fixed by the applicant bank. Total Export transactions of our company through this account was approximately US $ 1.5 million. The Export Bills so purchased by the bank were temporarily treated as a FUBP transaction. The applicant bank did not issue a passbook nor did it issue periodic transaction statements. Total PURCHASES BY BANK of about US $ 1.5 million This value is not directly released to the Current A/c but SPLIT UP by the bank in the form of FUBP Interest debits, PCL interest debits, ECGC (Insurance) debits, Bank charges debits and after all this the remaining amount is transferred to PCL account for REPAYMENT OF PCL and sometimes a portion of the balance is retained by the bank as a TERM DEPOSIT and any balance is transferred to Current A/c.

d) The applicant bank did not issue any comprehensive statement or a passbook though its transactions followed such a complicated route. There is no PCL passbook and no statement of PCL account given. There is no FUBP passbook and no statement of FUBP outstandings given. Current A/c does not reflect PCL outstanding or FUBP outstanding. No statement of interest, bank charges, Insurance (ECGC) and other debits ever given by the bank.

e) Unless the applicant bank issues a CONSOLIDATED statement of accounts comprehensively showing datewise PCL withdrawals, datewise PCL repayements, datewise PCL interest, datewise FUBP purchase details, datewise FUBP remittances to various accounts, datewise FUBP outstanding, datewise bank charges the defendant is not in a position to verify the basis of the appliant bank's claim. ONLY BY INTEGRATING accounts in this manner can the bank establish that their accounting is proper. It may also please be taken note that the Erode branch of the applicant bank has had a consistent history of corrup bank officials so there is no reason to believe that the bank's accounting is above suspcion.

f) This request for a comprehensive statement of accounts were made several times to the Branch, and thereafter this request was sent to the branch by email with a copy to the Chairman on July 7, 2002 for which we received an unsatisfactory reply on July 19, 2002 from Mr Cletus C A of the General Advances Department (GAD) of the bank with an email attachment of his letter dated July 18, 2002. (Copy enclosed). The reply glossed over the request made and immediately a reply was sent insisting on a comprehensive statement of accounts and there has been no response to the request from the bank since. Mr Cletus' response was rejected forthright by the defendant company and it reiterated its request for a comprehensive statement of accounts the same day, July 19, 2002. This matter has been been subsequently raised with the Reserve bank of India on various dates ( one of the more recent communications sent to the Exchange Control Deparment on 17th November 2003 and later to the Finance Minister vide our Communication dated 31st August 2003.

g) The bank has made false averments in para 3 of IA 699/03 filed on 17.07.2004 that the "petitioners were provided with the copies of the various transactions then and there". The bank did not have a practice of maintaining legible and clear accounts nor did it ever issue an intelligible statement.

h) It has always been difficult to obtain accurate records from the branch and even when taken up at the level of the Chairman of the bank, the bank has been evasive as evident from the bank's refusal to furnish records even over two years after the company brought this request to the attention of the Chairman vide its letter dated July 7, 2002.

i) Para 03 of IA 699/03 in OA dated 17.07.2004 filed by the respondent states that the respondent has filed the original applicaion certified under the Banker's Books Evidence Act .... The so called "original application" dated 30.8.2000 signed by the defendant and enclosed as part of the Bank's application to DRT is not the original application by the defendant. The orginal application is suppressed by the respondent bank. What is produced for record under the Banking Books Evidence Act is a part of the routine paperwork prepared and typed out by the bank and presented to the defendant company for signature on the day of sanction and documentation. The original application for a facility equal to the sum sanctioned was made on 22.09.1998 which was 700 days prior to the date shown in the record enclosed. The bank's reluctance to act on time resulted in a situation wherein the defendants were compelled to restrict their operations with temporary limits, sublimits, insufficient enhancements which after 700 days finally resulted in a sanction for the sum applied, by which time the limits sanctioned amonted to too little too late and had caused the company forego several valuable business transactions.

k) In presenting this routine record so called "orignal application" the bank presents a picture of instant application, instant assessment, instant head office approval, instant documentation and instant disbursal. The so called "original application", the various agreements, the various documentation, the board resolution, the signatures - all are dated 30.08.2000. The defendants submit that the applicant bank was far from instant, the bank took years to respond to business needs which was damaging and restrictive.

04) Para 04 of the IA 699/03 filed by the respondent alleges that the defendant is delaying the proceeding of this tribunal. The defendants are victims of all the delays caused by the respondent and the dealys at the Tribunal further aggravate the damages caused by the Respondent bank to the defendant company. It is the Applicant bank who causes the delays and not the Respondent:

a) Our petiton to the DRT seeking a directive for the said statement filed on 19.12.2003 (SKN 748/03) was not complied with by the bank which feigned to comprehend what was petitioned for and furnished a redundant copy of its original application No 269 dated 25.08.2003 instead of the comprehensive statement of accounts petitioned for, so it is the bank which engages in delay tactics.

b) Our petiton was filed once again and rather than choosing to furnish a statement of accounts the applicant continues to be evasive from the defendant's petition for a comprehensive statement of accounts.

d) If a legible statement was ever issued it should TALLY the balance as claimed as Rs 1.24,14.848.00 and because the bank is unable to do so, or has something to hide, the bank is evasive about this simple request for a statement of accounts pending since July 7, 2002 for nearly 800 days now. The applicant bank's system of disbursal and accounting was so complicated that is evasive and adamently refuses to furnish a clear statement of accounts.

e) It is not the defendant company who is "avoiding payment of a legitimate claim" but the applicant bank whose application to the Debt Recovery Tribunal is by itself a diversion from the 'defendant' company's representation to the Reseve Bank of India and to the Finance and Commerce ministries of the government of India seeking an investigation and intervention into the bank's restrictive policies and debilitating management practices that reversed the defendant's company's steady progress and proven prospects.

f) The applicant bank's application presents a picture of instant response to the company's Export Credit needs - the company filed an application for credit facility on a certain date, the bank sanctioned it on the same day and the funds are disbursed the next day on so on... The bank furnished selective records to present such a misleading picture. This is far from truth. The dates of our application for the credit facilities are different from the dates on the application form the respondent has shown. These are the dates when the bank completed the sanction formalities which included a formal application form. The respondent has misled the Tribunal by suppressing the actual dates of the application and suppressed the destructive delays in processing the credit needs which amounted to a time delay of 180 to 700 days.

g) In summary our complaint to the Reserve Bank of India dated March 12, 2002 (after waiting for a response to a represntation to the Bank's chairman made on 10th December 2001) was about the following:
With all the procedural problems and delays we were performing very well as an exporter and our performance improved from US $ 106,600 in 1996-97 to US $ 473,476 in 1998-99 a four-fold growth of performance in 3 years . This could have been far more if the bank had been professional and if the branch administration was clean in its assessment and service.

• The bank Refused to consider a promising proposal for creating manufacturing facilities
• The bank Blocked us from utilizing a term loan of Rs.1.5 crores sanctioned by SIPCOT
• The bank took our 180 days to partially concede to our requirement as PCL of Rs.75 lakhs
• The bank took 700 days to fully sanction our requirement in full, by white time the sanction was too little.
• The bank prevented us from moving to any other bank which could have more responsive.
• The bank hurt a major export order for US $ 803,750 placed by our regular buyer who had established a buying record well known to the bank, in spite of our repeated request for assessment of this highly time sensitive situation. At that point of time our limits were Rs 80 lakhs of Packing Credit and Rs 105 lakhs. The Packing Credit was fully utilized while all the bills purchased by the bank had realized, but the bank did not offer us the flexibility by considering the unitized portion of the post shipment limits usable. Nor did the bank allow us even the marginal flexibility of exceeding the sanctioned Packing Credit limit even by a fraction. With this impossible situation the export order of US $ 803, 750 could only be partially executed, that too with market borrowings forced upon us by the situation, which was also not sufficient, so the production was delayed, quantities ordered were reduced and finally the order was largely cancelled. With this event, our progress began to reverse, and our company's finances were severely damaged. The bank watched us degenerate and collapse without even acknowledging that its Erode Branch has hurt a customer so badly.
• The bank has done more serious damage by abruptly freezing our account due to which our business came to a standstill during the last four years with prosperous opportunities for growth and profit foregone and the losses are increasing.
• The bank blindly refuses to evaluate our requirements, problems and prospects in spite of various repeated requests for a comprehensive understanding of our problems and prospects.
• During the last four years the bank has been completely silent on its role, refuses to acknowledge any communication from us to its Chairman or other officials.
• The bank has not provided us with a comprehensive statement of our transactions after repeated requests from us. The bank's accounting system at the branch was very vague, it accounting format was confused and the bank is very reluctant to furnish us with a comprehensive statement of accounts.

h) It is the applicant bank which is trying to divert attention away from the defendant company's request for intervention and claim for damages pending with the Chairman of the Bank since July 17, 2003. The applicant bank has diverted the situation as a recovery proceeding and has withheld this and several other facts and has misled the Debt Recovery Tribunal.

05) The respondent has submitted that the defendants have executed balance confirmation on 29.08.2000. The applicant bank claims itself absolved of the obligation to furnish accounts by pointing out that the defendant company has signed a balance confirmation.

a) The defendant does not recollect this particular signature which was one of the several hundred signatures affixed on various papers prepared by the applicant bank - the so called "original applicaiton", Application for enhancement of Packing Credit facility, Board Resolution in the dictated format, Description of property, promisary note(s), agreement of packing credit hypothecation of goods, agreement of export advances, application for enhancement of Bill Discounting facility, another description of property, another promisary note, agreement of bills purchased and discounted, agreement of usance bills discounted, agreement of export advances, renewal of promisary note, security delivery letter, various annexures, modification of charges, and a register of charges. All these papers were matters of routine, signatures were affixed as a matter of trust and as a matter of routine.

b) It was perhaps a routine signature that the Managing Director of the defendant company affixed as one of the numerous signatures (about 100 each by the Managing Director as Managing Director, Managing Director as a person, Director as a person, Gurantor as person - each about a 100 signatures, on each of the dozen occasions when the bank pressed documentation during the period 1996- 2001), passed off as routine, affixed in trust that the bank was above suspcion.

c) The company became concerned about the validity of the applicant bank's accounting practices after it became known that at least two branch level officials were under investigation for financial impropriety.

d) If the applicant bank is so certain that its books and practices are square, it would not be so evasive from this petiton. In the context of the facts pertaining to the administrative history of the particular branch of the applicant bank, the defendant considers it vital that the bank produces a fair and proper comprehensive statement of accounts that would present an accuarate picture which would substantiate or withdraw the claim presented to the Tribunal.

2003 July 17 to Chairman, Federal Bank

Date Thu, 17 Jul 2003 220447 +0530

To padmakumar@federalbank.co.in

From cotton
Subject our account with your Erode Branch.
This print out sent by Registered Post.
Shri K P Padmakumar
Chairman
Federal Bank Limited
Aluva.

Dear Sir,

Our company has been banking with your bank since its commencement of business in 1996 and had made steady and consistent progress till year 2000 availing packing credit limits from your Erode branch well secured with collaterals and guarantees. From time to time we were facing various problems with regard to the assessment and review of our credit needs as also due to various procedural hurdles and administrative irregularities at the branch level with three consecutive branch managements.

In particular the bank restrained us from executing a bulk order for Rs. 3.43 crores in November 1999, by delaying assessment of our request for the required limits while simultaneously preventing us from moving to any other bank. At about the same time due to this uncertain attitude of the bank we could not take up another major order from an American Company which was even more valuable.

The bank had frozen our limits and this completely reversed all the progress that we had made during 1996-2000 and incapacitated our business causing loss of revenue and profits apart from completely hurting our prospects.

The various details have been summarized in our request for a comprehensive review of our accounts by a detailed and elaborate letter addressed to the Chairman on 10th December 2001, which was a step taken to bring the chairman's attention to how the bank's practices and the branch level hurdles were hurting our business prospects.

We waited for your response which was not forthcoming despite repeated reminders so a year later the matter had to be taken up with Reserve Bank of India. Later the Writ Petition (No 41167 of 2002)_ has also been filed in the High Court of Madras, which also did not prompt the bank to make suitable amends.

Due to various irregularities that existed at the branch administration during 1996 - 2001 and due to the bank's refusal to pay attention to our credit needs while preventing us from moving to a different bank, our company's prospects were severely hurt. The bank had unfairly frozen our account three years ago and this had completely hurt our business and it is estimated that our losses of profit due to loss of business alone amount to a value of Rs 2.4 crores, apart from the value of further progress on various business fronts, the value of the damage to our business reputation and personal anguish caused by the situation.

For the first four years of operation the procedural hurdles and delays at your bank limited our growth prospects in terms of establishing manufacturing facilities and accepting larger export orders. During the last three years whatever little progress that was made during the first four years was reversed, which caused considerable erosion of our inventories and other resources which left us crippled. There were various ways by which we were affected. Our work in process of that time was rendered unusable midway due to the situation forced upon us by the bank's total disregard for our needs and the way it kept our account frozen.

There were various other practical business factors that come into play when flow of resources were blocked. For instance alternative market borrowings that were forced upon us by the situation was prohibitively expensive. The quality of materials purchased with contingent market credit could not be assured. Time delays were expensive with a multiplier effect. One major problem lead to a multiplicity of problems and the losses multiplied, our various resources decayed during the last three years and the combined effect is such that it absorbed the money invested in stocks and work in progress. The bank was completely unwilling to allow us to move to any other bank that had a good understanding of our clean transaction record and prospects, nor did the bank allow us to create the manufacturing facilities required with Term Loan assistance from supportive term lending institutions.

Our business is completely incapacitated since the last three years. Our losses as on this date, 17th July, 2003 are estimated as under

* The profits lost in the unserviceable portion of the export order of Rs 3.43 crores alone was estimated to be Rs 60 lakhs including the drawback/DEPB benefits that would have accrued to us.
* The loss of export orders from our regular buyer, Fonora Textiles, Canada, whose orders were at a level of about Rs 4 crores per year, (without considering the annual increase in volume which was sometimes as high as 50%) was Rs 8 crores during the last 2 years which caused us a loss of profit and export benefits of Rs 1.4 crores.
* The loss of profits on account of a FRACTION of the various local transactions that we had to refuse would be another Rs 40 lakhs.

This estimate excludes the loss of business with an American Company whose transactions were to be larger and far more valuable which could not be taken up due to our situation at the bank. This estimate does not taken into account the numerous other positive enquiries from several overseas companies that could not be entertained despite all the positive interest shown by the companies by email correspondence and personal visits. Besides this estimate excludes our losses due to the various procedural hurdles and limitations caused by your branch during the first four years - between 1996 and 2000.This estimate does not truly reflect the extent of our prospects hurt by the restraint placed on us on the opportunities that we had to set up suitable manufacturing facilities. Beyond all this is the loss of reputation to the company and the directors and loss of the Directors' time and all the anguish caused, for which we still have not assigned a value.

The bank still fails to respond to the situation even after all these delays and losses. Under the circumstances it is appropriate that we make a claim for the Rs 2.4 crores estimated lost and in addition a suitable compensation for the damages to our company's reputation and the personal and family level anguish caused.

Thank you.
For Whitefield Cottons P Limited
M.Sivasubramanian.
Director.

first letter sent to Chairman, Federal Bank

Mr. K P Padmakumar
Chairman
Federal Bank Limited
Head Office
Aluva 683 101

Dear Sir,

Sub: Our Packing Credit Limit with your Erode Branch brought to the Chairman's attention for various reasons.

This note is addressed to the Chairman of the Bank on spefic banking problems that require the Chairman's direct attention with a request for interventional directives from the Chair.

Whitefield Cottons is a private limited company established in the year 1995, originally with the object of setting up an export oriented shuttleless weaving unit. The company is a closely held private limited company with two Directors, one of whom (Sivasubramanian Muthusamy) is a Business Management Graduate (MBA) and another (Dr Umamaheswari Sivasubramanian) is a practicing Family Medical Physician.

Even before the weaving project is given shape, the company began exporting cotton terry towels and made ups, well ahead of its manufacturing project which is still not commissioned as envisaged for various reasons.

This is a company with very promising and certain growth prospects limited only by want of fair credit facilities from Federal Bank where the company has been banking since 1995 with a Packing Credit Limit at Erode that remains frozen at Rs 80 lakhs since year 2000.

It is important for us to introduce our company and its prospects in its right perspective so as to enable the Chairman to gain a complete perspective of the company's certain prospects that are being limited. As an introduction we request the chairman to view our website at http://www.whitefieldcotton.net, effectively set up, and professionally indexed by the major search engines. The website is hosted by one of world's top most ecom business web services based in the United States. The company is now e-commerce capable and is standing by for the required facilities from the bank to become one of the first Indian textile companies to sell direct world wide its products with its own brand name.

The product line began as a mass produced industrial towel and expanded into terry utility towels to include luxury bath towels, bath robes and high end fabrics and made ups at present.

Apart from its impressive electronic commerce prospects, the volume of direct business that the company could generate would sound too ambitious to state in this communication, but at least it can be said that the company can generate more than enough export orders from the right buyers. The Director of the company's business travels during the last five years included destinations in USA, Canada, South America, almost all of Europe and some African countries. The Director travelled either as a member of an official Trade Delegation from the Export Promotion Council (once to Africa and once to South America) or as independant business visits to meet with Buyers in USA, Canada or Europe. As a result the company regularly receives enquiries from companies as varied as US textile giants with business volumes of over a billion dollars to smaller importers in USA and elsewhere whose imports are under a million dollars.

It is rare for a company to have strengths both on the marketing and on the technical front. The company is technically gifted, in the sense that the Director has systematically learned the technical aspects of its products as also the technical aspects of plant design and the manufacturing processes complete with a vivid evaluator's understanding of the required machines, the machinery capabilities, the machinery functions and their individual investment effectiveness- not only in Weaving but also in Yarn Spinning, Fabric processing and Finished Product manufacturing.

The company has a Packing Credit Limit of Rs 80 Lakhs, well short of its requirement, secured by collaterals actually valuable well in excess of the limits sanctioned, personal guarantees by the Directors and an additional guarantee by one of the family members, whose property is pledged as collaterals. The company has had an impeccable performance and operational record at the Branch, except for a problem at present which requires the Chairman's attention.

We had no infrasturcture at all till early 1999, and we had the products woven, whitened, stitched and baled by subcontractors in various locations. In this style of operation, there were problems related to quality, delivery time, cost over-run, logistics and administrative control, which included the issue of pilferage. More importantly, our buyer started insisting on inhouse manufacturing facilities as most experienced buyers do prefer.

So in 1999, as first phase, we invested all our DEPB and Drawback gains in land and buildings and plant and machinery, which has now given us a PART of the infrastructure required, to be improved upon:

1. Land 1.64 acres of prime, developed industrial land in a prominent location: We bought 1.64 acres of land in Sipcot Industrial Area, which comprises 2000 acres of modern and complete industrial infrastructure particularly suitable for Textiles, located 25 kilometers from Erode city center on a major national highway. Rs 8 lakhs paid up and approximately Rs 2 lakhs remains to be paid.
2. Used Japanese Terry Weaving Machines: We bought 28 imported second hand Japanese terry weaving machines. All these machines are in good working condition and comissioned 22 machines immediately in rented premises. The rest 6 machines are kept as reserve to meet additional capacity requirements. The value of investment is Rs 15 lakhs approximately.
3. Supporting Machinery: We also bought a secondhand baling machine, a 40 KVA geneator and weft yarn twisting machines required for the weaving unit. These equipments cost us Rs 4 lakhs.
   Tailoring Machinery: We acquired 6 powered straight line sewing machines and 18 powered overlock machines. The investment is about Rs 1.5 lakhs.
4. Factory Building: A factory building admeasuring 5000 sq.ft. was constructed in a land situated in a prominent place, leased from the Director's family. The cost of the building is about Rs 22 lakhs.
5. Office Building: Office infrastructure was greatly improved with a newly constructed building of land area 1264 square feet situated in a prime area in central erode. The cost of the building is about Rs 12 lakhs.

All these infrastructure facilities of value about Rs 62.5 lakhs were built up with out availing any term loan as during the period from 1996-97 to 2001 we received DPEB benefits to the tune of Rs.45.44 lakhs and by utilising a portion of the profits generated.

At this point of time we had a sanctioned term loan limit from Sipcot for Rs 1.5 crores for which the upfront fee of Rs 1.5 lakhs was paid, collaterals pledged, charges created and registered with the Registrar of Companies but the loan was not disbursed, one of the major reasons being the absence of a positve reference from Federal Bank which would neither approve of the term loan from another instituion nor would offer the required facilities itself. However the infrastructure created was in line with our original objective of creating a manufacturing facility and it also qualified as margin money brought in from our end towards the project cost, making us even more eligible to avail the term loan.

From Sipcot we could not avail the sanctioned term loan till it transferred all its project finance to its sister instituion TIIC. Eventually we had approcached IDBI, and later the TIIC, and by now our production requirement as also our increased expertise included textile processing in addition to weaving. We were encouraged by Government's Technology Upgradation Scheme (TUF) for which we were qualified in all respects for a Term Loan of Rs 5 crores at about 10% per annum with a re-payment period of 7 - 10 years and though there was overwhelming initial response at the instituion's highest levels at project presentation both the institutions eventually slowed down due to unknown reasons.

The export credit facilities with Federal Bank, Erode branch was a PCL of Rs 15 lakhs and an FUBP limit of Rs 20 lakhs in 1996 which now remains as a PCL of Rs 80 lakhs (fully utilised) and an FUBP limit of Rs 105 lakhs (all negotiated bills are collected and there are no FUBP outstandings).

With virtually no production infrastructure due to delay in availing term loan facilities, exports progressed and we performed very well during the first 5 years.The figures are as below:

(Rs. '00,000s)

Year Export Sales Profit
1996-97 37.38 2.55
1997-98 150.42 9.75
1998-99 200.27 19.03
1999-00 141.14 26.41
2000-01 113.50 3.12

The business came down since year 2000 due to the following reasons:

We have been shipping our products since 1996 to a company in Canada, Montreal. We considered it important not to take up excessive commitments before we establish full-fledged, integrated manufacturing facilities. This overseas client had been buying our products in suitably large volumes, and most of our transactions valued at over Rs.1.5 million during the last 4 years were from this company.

The company has been a comfortable buyer to work with and it has been very safe to transact business with this company, but the ordering pattern right from the biginning was prone to seasonalities - about 6 months of voluminous offtake and 6 months of comparatively inactivity.

The ordering pattern was taken up during a visit by the director of with the overseas client to visit our company in India in October1999, as a result the ordering pattern was streamlined and made more voluminous and well scheduled.

FoThe overseas client placed a bulk order amounting to Rs. 3.43 crores in November 1999, all to be Letters of Credit transactions. The schedule of shipments was to start in December 1999 to complete the about 65% of the total volume by February 2000. The export credit enjoyed by us at that time from the bank was PCL Rs.60 lakhs and FUBP Rs. 90 lakhs. These limits were quite insufficient to execute this order, of which exports of about 2.4 crores were to be effected with in the next 90 days as peak requirements. Therefore, we approached the bank with a proposal enhancement of PCL limit to Rs. 1.20 crores. However, the bank did not consider the term loan proposal and sanctioned only enhancement of PCL limit to Rs.80 lakhs.

In the absence of timely response from the Erode Branch, we still took efforts to meet our export commitments by availing market credit for raw material purchases and services, which turned out to be disproportionately expensive and at the same time constrained the quality. Market Credit instead of fair Bank facilites was at an unfair price, at an unfair interst for an unfair quality on unfair terms. Worse, the measures at such a high expense were not enough to fulfil all our export commitments on time.

Though we could not keep up the schedule initailly given, the buyer was so kind and considerate that he rescheduled the shipments by extending the delivery period. However, we could not meet this even this revised and lightened schedule, as our limits remained emphatically fixed at Rs 80 lakhs without even a marginal flexiblity. Whatever funds we were having had been invested in the fixed assets and we could not raise any finance from own sources.

We had submitted the proposal for enhancement in November 1999, but the bank sanctioned the enhancement only in August 2000. By the time the entire order became stale and we could not ship any consignment and the order was cancelled, since the importing company had to buy from other suppliers to meet their requirement.

Cancellation of orders had its own multiplier effect. The damage to the company did not stop with reduction in its turn-over and anticipated export profits. The various sub contract units entrusted with weaving, processing and tailoring job works started the work but we could not effect the payment towards their labour charges, again for want of adequate funds. When the PCL of 80 lakhs was sanctioned and disbursed, it was so late and so insufficient that it was just sufficient to meet our commitments to the yarn suppliers and we could not take back the stock lying with the processing units due to paucity of funds. ( In business, in practice, quite contrary to what the theory says, in a situation where the requirement of funds amounts to, say, a hundred thousand - required TODAY- and against this requirement if fifty thousand is made available a month too late, the problem does not get halved, the problem remains as it was, perhaps more intensified because what is made available too late disappears due to problems accumulated for want of timely response.) Therefore, we incurred heavy loss by way of stocks lying with the processing units which has now become unusable. Whatever stock could be saved, we recovered and are goods are under process.

Faced with the problems concerning non-availablility of a sanctioned term loan, severely restricted export credit facilities which remain frozen at Rs 80 lakhs and a total absence of condusiveness to avail alternate / additional credit facilites, we were unable to perform. There were specific opportunties to have our Export Credit Limits more than doubled by other banks which back-tracked due to resistence from Federal Bank.

The end result is our inablity to take up any of the several valuable propositions to import from our company. We require to be in a position to fund the required production before we commit to export. What we have taken up at the moment are local merchant export commitments totalling Rs 7 lakhs for high value terry towels, while we are unable to commit for voluminous and valuable exports.

The bank had considerable role in building up the situation to the present level. There was no timely advice from the part of the bank at any moment of time. There was no effort to understand our financial position and estimate our financial requirements in a realistic manner inspite of our repeated plea for 'a comprehensive reivew of our requirements'. The bank reacts to our recent non-performance entirely by its excessive focus on its own security of the funds advanced. The advances are more than well secured: the credit limits sanctioned to us are well secured with adequate collaterals; besides, the bank also holds the guarantees from both the directors and one of the family member of the directors. Therefore, there is no need for any alarm by the bank at this stage. The bank's concerns are restricted to its narrow perspective of our short term difficulties with total silence on its own role in crippling our ability to perform. This is not fair.

Earlier we had a practice of approaching the Regional Office or Head Office direct to represent our problems which was stopped as we had to heed the sentiments of the previous branch management. Even as our company was performing excellently during the first few years we had had our share of problems at the Branch and we did understand that there was a review by the Head Office and changes were effective at the Branch level. The present branch management has been considerably more businesslike, but paradoxically, these branch level changes have created excessive caution as far as this Branch was concerned and even the fact that our account happens to be at the Erode branch might have affected our banking opportunities.

Even now, the bank is not considering certain ways of reviving the unit making it a viable, profitable high performance in the pattern of its earlier growth trend until the unit faced its export credit problem.

We have now sought the assistance of a financial consultant and he is working on a comprehensive plan.

We are faced with two distinct problems: one is export performance for which we have substantial potential and avenues unexploited for want of funds. We can immediately start export of cotton yarn, which is less profitable but can boost our performance immediately. We had asked for a supportive commitment from the Branch to enable immediate yarn exports and the Branch has so far not committed on this. If the bank had enabled yarn exports we would have considrably brought down the over due PCLs to recently drawn PCLs. We require support facilities from the bank to enable us to take up yarn exports which can be an effective solution to the problem of overdue PCLs. If the bank could make a more comprehensive assessment of our Export Credit Needs with particular attention to the hardships we endured in the absence of timely assessment, we can commit to ship Terry Towels and other woven and made up products in large volumes as also begin selling direct to consumers on the internet by activating the built in e-commerce features at our website with one of the world's top ecom business web serices, already on the internet ( http://www.whitefieldcotton.net ). We once again request the Chairman to see this website.

The other problem is that interest on PCL is overdue in our account for the first time in 6 years, to the tune of Rs 8.10 lakhs. As advised by our Financial Consultant, we are now focussed on the task of clearing the whole accumulated interest. While it is difficult to fund for even a very minimal level of activity and all other overheads, we are faced with this interest overdue. The the Branch is categorical in its ruling that the interest has to be serviced before we can discuss any of our problems, which we agreed to abide by. We offered to sell one of our family properties to meet with this commitment and the bank urges us to do this. We have made arrangements to sell a property now set aside for the purpose one of family property to bring in additional funds and we are making progress on this front. However this process will take at least one more month as there is a delay in reaching an agreement on the price for the land to be sold. We assure you that we would be clearing all the arrears in interest within one month, once the sale proceeds of our property is received.

The Branch now threatens to issue us a recall notice. If the bank proceeds with the recall course it will only help to kill a promising industrial unit which has been contributing to the nation's export pursuits. We submit that it is unfair to throttle life out of our promising industrial enterprise which can produce certain and significant results.

We are now looking forward to the Chairman's attention, assistance, guidance and support to make this unit realize its promising potential. The recent export policy of the government of India has identified textile export as one of the potential area for development and has announced various concessions and benefits to improve the export performance in the textile sector. The recent report reveals that the textile export is on a growth path and there is wide scope for further enhancement of this trend.

We therefore, request you to consider the following facilities to us:

We expect the sale of our property to take one month. Please allow us one month’s time to clear the interest arrears.

We wish to take up yarn exports which would boost our export performance. Please sanction us a back to back inland LC facility to procure yarn and export.

We wish to be in a position to commit to produce and export terry towels, fabrics and other made ups. If are to make export commitments, we should be in a position to avail additional Packing Credits from the bank.

Please examine our requirements in this regard.

We are now even more determined to proceed with our manufacturing project. Even before we approached SIPCOT we did try to obtain the term loan facilities from Federal Bank in 1997. We had asked for a Term Loan denominated in Foreign Currency and the Head Office turned down with the observation that the Bank's exposure to foreign currency is limited to a maximum period of 3 years. The Head Office did not offer us alternatives such as a Rupee Term Loan. At present, in order to carry on the production, we needed some balancing equipments. We now request the bank to extend term loan assistance to build up inhouse processing facilities. If this is not possible we request the Bank to grant us minimal term loan facilites that we require immediately to balance our present manufacturing facilites. We are ready to offer additonal collateral securities to cover this limit.

Eventually we are to go ahead with our plans for a shuttleless weaving and soft flow processing unit. If the bank would prefer not to fund this expansion, we emphatically submit to the Bank to at least allow us to avail the required project finance from any term lending institution like SIDBI or IDBI. The bank has so far been unfavourable to this proposal and we were unable to make progress with our applications to the institutions due to this reason.

The success of any industrial unit depends upon the financial partnership also. If the banks do not understand the industrial enterprise's financial needs and extend timely help, even the most promising industrial units can not survive. We therefore, humbly request you to look into our request favourably and extend your support and guidance to turn this unit into one of the best textile manufacturing unit in South India. Should we get an opportunity, we are ready to make personal presentation about our comprehensive plan personally to you.

We look forward to a broader assessment and a positive response from you. Despite all the problems as pointed out above, the fact remains that it is Federal Bank that sanctioned limits to us to begin our existence as an export company. We are grateful to you for this original assistance and we still believe that a clear understanding of our requirements by the Chairman would enable us to emerge as one of the best performing textile companies.

With warm regards,
Yours truly,
M Sivasubramnaian.
Director
Whitefield Cotton (P) Limited

2003 September 2 to RBI

Smt. P.K. Makhija
Chief General Manager
Industrial and Export Credit Department
Reserve Bank of India
Central Office Building
12th Floor
Mumbai-400 001
Telephones: 22663450 22660407
Tuesday, September 02, 2003

Dear Madam,

Sub: Our pending complaint with the Reserve Bank of India against Federal Bank Limited brought to your attention as emailed to you on August 31, 2003 at the address rbibiecd@giasbm01.vsnl.net.in
This relates to our pending complaint against Federal Bank Limited sent to the Reserve Bank of India on March 11, 2002. Our complaint related to the procedural and management lapses at the Erode branch of Federal Bank Limited where we had our Export bank account. The complaint was about the serious administrative and banking lapses at this branch of the bank which led us into a serious financial crisis and caused a complete reversal of the progress we made in exports during the first four years of our operation, halted our progress, hurt our prospects and caused considerable financial losses.

Our complaint to the Reserve Bank of India was not studied in detail and was treated as a simple case of commercial judgement of the bank, which wasn't the case represented to the RBI. The bank also gave the RBI a superficial explanation full of falsehood which was prima facie considered satisfactory by RBI and a by RBI's letter IECD No 4094/04.02.03/2001-02 dated April 12, 2002 we were told that it is a case of commercial judgement of the bank but it was not what we represented to the Reserve bank of India about.

Our company, Whitefield Cottons P Limited is in the business of exporting cotton terry towels and our export record since we began operations in 1996 was consistent and rapidly progressing. We were exporting direct, mostly to Canada, all with Letters of Credit, with a blemishless transaction record.

In summary our complaint was about the following

With all the procedural problems and delays we were performing very well as an exporter and our performance improved from US $ 106,600 in 1996-97 to US $ 473,476 in 1998-99 a four-fold growth of performance in 3 years . This could have been far more if the bank had been professional and if the branch administration was clean in its assessment and service.

The bank Refused to consider a promising proposal for creating manufacturing facilities

The bank Blocked us from utilizing a term loan of Rs.1.5 crores sanctioned by SIPCOT

The bank took our 180 days to partially concede to our requirement as PCL of Rs.75 lakhs

The bank took 700 days to fully sanction our requirement in full, by white time the sanction was too little.

The bank prevented us from moving to any other bank which could have more responsive.

The bank hurt a major export order for US $ 803,750 placed by our regular buyer who had established a buying record well known to the bank, in spite of our repeated request for assessment of this highly time sensitive situation. At that point of time our limits were Rs 80 lakhs of Packing Credit and Rs 105 lakhs. The Packing Credit was fully utilized while all the bills purchased by the bank had realized, but the bank did not offer us the flexibility by considering the unitized portion of the post shipment limits usable. Nor did the bank allow us even the marginal flexibility of exceeding the sanctioned Packing Credit limit even by a fraction. With this impossible situation the export order of US $ 803, 750 could only be partially executed, that too with market borrowings forced upon us by the situation, which was also not sufficient, so the production was delayed, quantities ordered were reduced and finally the order was largely cancelled. With this event, our progress began to reverse, and our company's finances were severely damaged. The bank watched us degenerate and collapse without even acknowledging that its Erode Branch has hurt a customer so badly.

The bank has done more serious damage by abruptly freezing our account due to which our business came to a standstill during the last four years with prosperous opportunities for growth and profit foregone and the losses are increasing.

The bank blindly refuses to evaluate our requirements, problems and prospects in spite of various repeated requests for a comprehensive understanding of our problems and prospects.

During the last three years the bank has been completely silent on its role, refuses to acknowledge any communication from us to its Chairman or other officials.

The bank has not provided us with a comprehensive statement of our transactions after repeated requests from us. The bank's accounting system at the branch was very vague, it accounting format was confused and the bank is very reluctant to furnish us with a comprehensive statement of accounts.

The various details were vividly summarized in our request for a comprehensive review of our accounts by a detailed and elaborate letter addressed to the Chairman on 10th December 2001, which was a step taken to bring the Chairman's attention to how the bank's practices and the branch level hurdles hurt our business prospects.

We waited for the Chairman's response which was not forthcoming despite repeated reminders so a year later the matter had to be taken up with the Reserve Bank of India. (Text of our complaint to the Reserve Bank of India is included in this email message as the last part of this email message)

Later a Writ Petition (No 41167 of 2002)_ has also been filed in the High Court of Madras, which also did not prompt the bank to make suitable amends.

Due to various irregularities that existed at the branch administration during 1996 - 2001 and due to the bank's refusal to pay attention to our credit needs while preventing us from moving to a different bank, our company's prospects were severely hurt. The bank had unfairly frozen our account three years ago and this had completely hurt our business and it is estimated that our losses of profit due to loss of business alone amount to a value of Rs 2.4 crores, apart from the value of further progress on various business fronts, the value of the damage to our business reputation and personal anguish caused by the situation.

For the first four years of operation the procedural hurdles and delays at this bank limited our growth prospects in terms of establishing manufacturing facilities and accepting larger export orders. During the last three years whatever little progress that was made during the first four years was reversed, which caused considerable erosion of our inventories and other resources which left us crippled. There were various ways by which we were affected. Our work in process of that time was rendered unusable midway due to the situation forced upon us by the bank's total disregard for our needs and the way it kept our account frozen.

There were various other practical business factors that come into play when flow of resources were blocked. For instance alternative market borrowings that were forced upon us by the situation was prohibitively expensive. The quality of materials purchased with contingent market credit could not be assured. Time delays were expensive with a multiplier effect. One major problem lead to a multiplicity of problems and the losses multiplied, our various resources decayed during the last three years and the combined effect is such that it absorbed the money invested in stocks and work in progress. The bank was completely unwilling to allow us to move to any other bank that had a good understanding of our clean transaction record and prospects, nor did the bank allow us to create the manufacturing facilities required with Term Loan assistance from supportive term lending institutions.

Our business is completely incapacitated since the last three years. Our losses as on this date, 17th July, 2003 are estimated as under

* The profits lost in the unserviceable portion of the export order of Rs 3.43 crores alone was estimated to be Rs 60 lakhs including the drawback/DEPB benefits that would have accrued to us.
* The loss of export orders from our regular buyer, Fonora Textiles, Canada, whose orders were at a level of about Rs 4 crores per year, (without considering the annual increase in volume which was sometimes as high as 50%) was Rs 8 crores during the last 2 years which caused us a loss of profit and export benefits of Rs 1.4 crores.
* The loss of profits on account of a FRACTION of the various local transactions that we had to refuse would be another Rs 40 lakhs.

This estimate excludes the loss of business with an American Company whose transactions were to be larger and far more valuable which could not be taken up due to our situation at the bank. This estimate does not taken into account the numerous other positive enquiries from several overseas companies that could not be entertained despite all the positive interest shown by the companies by email correspondence and personal visits. Besides this estimate excludes our losses due to the various procedural hurdles and limitations caused by your branch during the first four years - between 1996 and 2000.This estimate does not truly reflect the extent of our prospects hurt by the restraint placed on us on the opportunities that we had to set up suitable manufacturing facilities. Beyond all this is the loss of reputation to the company and the directors and loss of the Directors' time and all the anguish caused, for which we still have not assigned a value.

The bank still fails to respond to the situation even after all these delays and losses.
We have made a claim for Rs 2.4 crores estimated lost and in addition a suitable compensation for the damages to our company's reputation and the personal and family level anguish caused. This was sent by letter by Registered Post and by email on 17th July, as included in this email, which again is not responded.
Our request to the Reserve Bank of India is to examine our complaint in detail, investigate into the administrative irregularities that caused us these damages and intervene for a fair remedy.

The text of our original complaint to the Reserve Bank of India dated March 11, 2002 is included as part of the email message sent to you (copy enclosed).

Thank you.
For Whitefield Cottons P Limited
M.Sivasubramanian.
Director.