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
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