To ushathorat@rbi.org.in, rbidboco@bom3.vsnl.net.in, rbibiecd@giasbm01.vsnl.net.in, rbiecdco@bom3.vsnl.net.in
From cotton
Subject Our pending complaint with the Reserve Bank of India against Federal Bank Limited.
Cc rbiecd@giasbmo1.vsnl.net.in,
Smt. Usha Thorat
Executive Director
Reserve Bank of India
Shri M.R. Srinivasan
Chief General Manager-in-Charge
Department of Banking Operations
Smt. P.K. Makhija
Chief General Manager
Industrial and Export Credit Department
Smt. Grace E. Koshie
Chief General Manager-in-Charge
Exchange Control Department
Dear Sir/ Madam,
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.
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 this email message, after the email communication to Federal Bank's Chairman, which immediately follows below.
Thank you.
For Whitefield Cottons P Limited
M.Sivasubramanian.
Director.
To rbibiecd@giasbm01.vsnl.net.in
From cotton
Subject Resent again Resent with a repeated request for closer scrutiny Reply to your letter IECD No 4094/04.02.03/2001-02 dated April 12, 2002
Cc padmakumar@federalbank.co.in
Bcc drsasidharank@rediffmail.com
Sir,
In response to your letter IECD No 4094/04.02.03/2001-02, we had pointed out that the Bank's explanations were superficial and misleading. We had requested you to scrutinize our case in complete detail and help us have a fair solution. We have incurred huge losses on account of the various problems as outlined in the letter originally sent to the Reserve Bank of India and resting with the bank for about four months.
The damage done to us already is further aggravated by the total absence of any response from the Bank and the Chairman's office in spite of the elaborate presentation of the various problems we faced with the bank on how our prospects were hurt and continue to get hurt.
While we repeat our request to the Reserve Bank of India not to abandon our problem but scrutinize our problem thoroughly, by a copy of this letter we are requesting the Chairman of the bank to respond to our elaborate communications awaiting his reply for several months now.
Thank you.
for Whitefield Cottons P Limited
Shiva Muthusamy
Director
Date Mon, 03 Jun 2002 221130 +0530
To rbibiecd@giasbm01.vsnl.net.in
From cotton
Subject Resent with a repeated request for closer scrutiny Reply to your letter IECD No 4094/04.02.03/2001-02 dated April 12, 2002
Cc padmakumar@federalbank.co.in
Bcc drsasidharank@rediffmail.com
Sir,
We are awaiting your response to the following mail message sent on April 23 (concerning our complaint against Federal Bank dated March 01, 2002. We request you once again to examine our case thoroughly and help us have a fair solution.
Thank you.
For Whitefield Cottons P Limited
Shiva Muthusamy
Director.
Cc to Mr Padmakumar, Chairman, Federal Bank.
Date Tue, 23 Apr 2002 012209 +0530
To rbibiecd@giasbm01.vsnl.net.in
From cotton
Subject Reply to your letter IECD No 4094/04.02.03/2001-02 dated April 12, 2002
Date Tue, 23 Apr 2002 010805 +0530
To rbibiecd@giasbmo1.vsnl.net.in
From cotton
Subject Reply to your letter IECD No 4094/04.02.03/2001-02 dated April 12, 2002
Mr S D Sapkal
Deputy General Manager.
Sir,
Thank you for your letter in response to our complaint against Federal Bank.
We agree that grant of commercial credit depends on the judgement of the bank, but our letter to the Reserve Bank concerns procedural and management lapses as also a restrictive attitude by the bank which brought our company to a situation whereby the advances have become overdue. We have been struggling to get the bank to pay attention to our actual credit needs since March 1996 and one crucial instance was that the bank refused to respond to our credit needs for an order of US $ 803, 750 placed on us on Nov 5, 1999 and due to insufficient credit we were unable to meet our production and shipment commitments.
The bank has misrepresented various facts, for example that bank has misrepresented that "LCs actually materialized were few thought large orders were received". 90% of our performance was by way of exports to one company - Fonora Textiles, Canada, and ALL PCL for orders from this company were "against orders" in practice, and it was an accepted practice that Letters of Credit were released by the Buyer at the time of shipment. ALL PCL for production of goods to this Buyer was taken by presenting copies of the orders on hand, and it is strange that the Bank has now found a justification for its unresponsiveness to our crucial credit needs. L/Cs were received at the time of shipment when the goods were ready to ship. This has been explained over and over again to the bank and has been accepted in practice and PCLs were released accordingly. When the Bank was not giving us the required credit to produce, our production for the orders on hand were less than half of what was required and we asked for and received L/Cs for goods that we could ship.
The banks explanations have been superficial and in no way explains its failures and negligence and its management lapses. We have brought this matter to the attention of the RBI because the bank is too focused on security aspects - as long as it suited the bank to profit with absolute safety, it did release advances (well secured advances) and the moment the bank felt the properties pledged were inadequate it abruptly stopped responding, no matter what happened to our company. In fact we have been repeatedly requesting the bank to take a comprehensive view for the past 2 years and even been sending detailed communication to the Chairman since December 2001 and there is no response and no sign of any attention to our needs.
Our request to the apex body is that this apex institution may not please be prevented from taking a fair and detailed look at this problem by summarily accepting the superficial explanations given by the Bank.
It is not clear when the Bank has recalled the advance. The Branch sent us a notice that the Bank may proceed with recall proceedings, in response to our first letter to the Chairman. If there was any disagreement with stock valuation, it has also not been communicated to us, nor any explanation sought from us. No diversion of funds have taken place and if the bank has said funds have been diverted, it is not true.
The bank attempts to look right on record, and it is far from right.
Please look in the procedural and management lapses that led us into a serious financial crisis. It has been vividly and chronologically outlined in our original letter dated March 01, 2002.
Thank you.
Sincerely,
Shiva Muthusamy
Director.
Whitefield Cottons P Limited 389/2 Perundurai Road Erode 638011 India Tel ++91 424 269853 / 54 / 262285
Date Sun, 31 Aug 2003 135202 +0530
To padmakmar@federalbank.co.in
From cotton
Subject Reminder II our account with your Erode Branch.
Cc chsec@federalbank.co.in, mdsr@federalbank.co.in, rswamynathan@hotmail.com
Sir,
Please pay attention and make the required amends.
Thank you.
For Whitefield Cottons P Limited
Shiva Muthusamy
Director.
Date Wed, 13 Aug 2003 143729 +0530
To padmakumar@federalbank.co.in
From cotton
Subject Reminder 1 our account with your Erode Branch.
Cc chsec@federalbank.co.in
with a copy to the Chairman's Secretariat at the Bank with a request to remind the Chairman that this matter is pending his attention.
Shri Padmakumar
Chairman
Federal bank Limited
Aluva.
Sir,
The following letter, sent both by email and by Registered Post is pending your acknowledgement and response since July 17, 2003. This is concerning a matter taken up with you as Chairman as the Head of the Bank which is pending your attention and acknowledgement since 10th December 2001.
Delays and omissions by the Bank has caused us considerable hardship and because the bank is still delaying appropriate corrective remedies for its omissions, our losses are further increasing and our troubles are intensifying.
We hope that the bank is forthcoming at least after all these delays.
Thank you.
For Whitefield Cottons P Limited
Shiva Muthusamy
Director.
Date Thu, 17 Jul 2003 220447 +0530
To padmakumar@federalbank.co.in
From cotton
Subject our account with your Erode Branch.
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.
Text of the complaint sent to Reserve Bank of India on March 11, 2002.
March 11, 2002
To
The General Manager,
Reserve Bank of India,
Industrial and Export Credit Department,
Chennai
Sir,
Sub Our Export Credit Limit with the Erode Branch of Federal Bank Limited.
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 Umamaheshwari 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.
Detailed Executive Summary
It is important for us to introduce our company and its prospects in its right perspective so as to present a complete perspective of the company's certain prospects that are being limited. A fair introduction would be to request 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 e-commerce 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 traveled either as a member of an official Trade Delegation from the Export Promotion Council (once to Africa and once to South America) or as independent 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 attention by the top management of the bank.
We had no infrastructure 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 in house 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
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.
- Used Japanese Terry Weaving Machines We bought 28 imported second hand Japanese terry weaving machines. All these machines are in good working condition and commissioned 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.
- Supporting Machinery We also bought a secondhand baling machine, a 40 KVA generator 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 over-lock machines. The investment is about Rs 1.5 lakhs.
- 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.
- 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.
At this point of time we had a sanctioned term loan limit from Sipcot for Rs 1.5 crores for which the up front 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 positive reference from Federal Bank which would neither approve of the term loan from another institution 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 institution TIIC. Eventually we had approached 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 Up gradation 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 institution'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 utilized) and an FUBP limit of Rs 105 lakhs (all negotiated bills are collected and there are no FUBP outstanding).
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. In Lakhs)
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 one company, Fonora Textiles Inc.., Montreal. We considered it important not to take up excessive commitments before we establish full-fledged, integrated manufacturing facilities. Fonora Textiles has 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 beginning was prone to seasonality - about 6 months of voluminous off take and 6 months of comparatively inactivity.
The ordering pattern was taken up during a visit by the director of Fonora to visit our company in India in October1999, as a result the ordering pattern was streamlined and made more voluminous and well scheduled.
Fonora Textiles 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 (the absence of timely response from the Bank has been a chronic problem as chronologically outlined in the following section). 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 facilities was at an unfair price, at an unfair interest for an unfair quality on unfair terms. Worse, the measures at such a high expense were not enough to fulfill all our export commitments on time.
Though we could not keep up the schedule initially 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 flexibility. 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 labor 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.) In the time that the Bank took to respond to and finally deny our requirements, 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-availability of a sanctioned term loan, severely restricted export credit facilities which remain frozen at Rs 80 lakhs and a total absence of conduciveness to avail alternate / additional credit facilities, we were unable to perform. There were specific opportunities to have our Export Credit Limits more than doubled by other banks which back-tracked due to resistance from Federal Bank.
The end result is our inability 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, 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 inspire of our repeated plea for 'a comprehensive review 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 considerably 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 e-com business web services, already on-line
(http//www.whitefieldcotton.net).
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 focused 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 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 has taken longer than anticipated as there is a delay in reaching an agreement on the price for the land to be sold.
The details related to our requirement of funds and the bank's response or the absence of it, in chronological order
We incorporated this company in June 1995 with the object of establishing an export-oriented, modern shuttleless weaving unit, to expand into an integrated textile manufacturing unit.
While the manufacturing project was in the process of being planned, an earlier preliminary business travel resulted in an export order from Fonora Textiles, Canada through a contact based in London.
The letter of credit was from the Bank of Montreal for US $ 57,400 for a shipment to be sent within the next 6 weeks and with this document to begin our exports, we approached Federal Bank Limited on 08/03/1996.
The Bank was responsive and by 15/03/1996 vide sanction order no.30374 a temporary , one time Packing credit Limit of Rs.15 Lakhs as PCL (and Rs.20 Lakhs as FDBP) were sanctioned.
We have remained repeatedly expressive and thankful to the bank since then with the understanding that it was possible to jump-start as an export business partly because of the bank's responsiveness to the first
opportunity that we had to export.
To secure this temporary Packing Credit Limit of Rs 15 lakhs, we had lodged a collateral security of a building of area 1020 square feet in the central commercial area of Erode and completed all documentation formalities. The formalities of confirming the temporary limit as permanent extended till mid-may 1996 due to an error in interpretation of the description and area of the collateral offered.
The actual area of the property was 1020 square feet, but was recorded by the Branch Manager in his report sent as part of the application to the Regional office as 1000 square feet. This was objectionable and in addition, the legal department at regional office found reason to consider 159 square feet out of 1020 square feet to have an insufficient property description. We presented a clarification relating to the description of our property vide our letter to branch dt.15/05/1996, as also another legal opinion related to this specific point. It was also represented in the same letter that the property offered was several times as valuable as the value taken by the branch manager and it was requested that a grade IV officer may be deputed to inspect and value the property. By this time orders on hand and orders under negotiation increased, so the company requested by this letter dated 15/5/96 enhancement of PCL to Rs.45 lakhs along with proposals for an ad hoc, interim term loan of 6.89 lakhs for a tailoring unit which was not entertained. With this request pending we had to offer an additional property of 6000 square feet, which was conservatively valued by branch as a property of value Rs.59 Lakhs. The branch had taken the property as additional collateral security instead of as a substitute for very valuable and legitimate property of 1020 square feet. which was already lodged with the bank. We asked the first property of 1020 square feet to be returned but it was not done so by the bank. There was a verbal assurance given by the branch that a comfortable value of collateral would enable the bank to sanction enhancements required and other future requirements quickly.
After 9 weeks, The regional office made the temporary limit to permanent, without considering our request for enhancement, by its sanction order no.30398 SL.No.MDSR/PF 1149/gad/287/96 dated 22.5.96 as a non-priority advance. Eventually during November 1996 we submitted a proposal for installation of 12 Shuttleless weaving machines from Switzerland made by Sulzer Ruti AG in two phases ( 6 machines in phase 1 and another 6 machines in phase II). In phase I we requested a term loan of 216.68 lakhs, out which 107.46 lakhs was requested as a US Dollar denominated term loan. The branch manager sent us a query during Dec’96 seeking clarification relating to the net worth of the company, net worth of the promoters etc.. All the particulars called for by the branch were elaborately presented vide our note to the branch manager dated 22/12/1996.
Eventually the director of the company paid a visit to the Head Office at Aluva, Kerala to meet with officers in foreign exchange department and further elaborated on the project proposal. Subsequently on 31/12/1996 detailed financial workings were submitted explaining debt service coverage ratio etc., but the bank eventually turned down the proposal with simple observation that " The banks exposure to foreign currency risks is limited to 3 years". This was the reason cited and the message was clear that the Bank was not inclined to take up the proposal.
The PCL sanctioned remained at the same level until the middle of 1997 but the branch imposed procedural restrictions even about availing Rs.15 lakhs sanctioned to us.
On 27/04/1997 we had shown our workings to the bank that our PCL requirement was, based on simple calculations, Rs.52.78 lakhs. Again 20/06/1997 we submitted our proposals for enhancement with detailed financial projections and workings to request for PCL to be enhanced to Rs.45 lakhs (and FUBP limit to Rs.60 lakhs seeking a total of Rs.110 lakhs). The Assistant General Manager of the foreign exchange department of the Head Office vide sanction order S.No.10616 (FEX 18-8/ PF 7087 dt.22/10/1997) sanctioned PCL as Rs.25 lakhs including a sub-limit of PCL against orders not back by LC of Rs.15 lakhs (and an FUBP Rs.45 lakhs giving us a total of Rs.70 lakhs as a overall limit).
It was pointed out by our letter dated 05.11.1997 that the limit sanctioned were insufficient. The orders to be executed with in the next 3 weeks amounted to Rs.40 lakhs and apart from this the additional tentative shipping schedule for the next 7 weeks amounted to Rs.37 lakhs. By the same letter we requested the bank to consider our representation for enhancement to the level as requested to a PCL of Rs.45 lakhs (and FUBP limit of Rs.60 lakhs). The branch also conveyed to the Regional Office that the borrowers were not satisfied to the new limits sanctioned to them.
After 7 months the Regional Officer partially consider to our request vide the sanction letter MDSR/MLS/-/98/dated 15.06.1998 by temporary enhancing PCL to Rs.38 lakhs for a period of 2 months and (FUBP/FDBP limit to Rs.60 lakhs for a period of 3 months). We explained the nature of our requirements once again vide our letter dated 22/02/1998 drawing attention to the fact that our original requirements to enhance the PCL to Rs.75 lakhs (and FUBP proportionately) . After repeated representation the temporary limit was revalidated again as a temporary limit without further enhancement by the Regional Office and revalidation was to be valid up to 31/01/1999. In the mean time the conditions stated in sanction orders were to be complied with.
By our letter dated 03/11/1998 we submitted that we had achieved 2 times (200%) of the turnover projected after obtaining the temporary limits. It was shown that orders on hand for the next 6 weeks amounted to US $ 150,000 and order of approximate value US $ 500,000 were expected to the confirmed for the next 6 months. Stating that our requirement for funds were on the order of Rs.75 lakhs as PCL we requested the Regional Manager to at least revalidate the temporary PCL and FUBP sanction immediately.
It was very clearly stated that the current level of Rs.38 lakhs of the PCL was too insufficient to process even half the orders on hand. It was emphatically stated as follows
" Unless the desired levels of credit limits are [ not] sanctioned immediately, it may not be possible to implement the orders on hand and maintain the reputation so for created by us with our Buyers. This note may please be treated as extremely urgent ……."
Until Dec 1998, our performance, with all these banking constraints was as follows
1996-97 US$ 106,600
1997-98 US$ 361,852
1998 (Apr-Dec) US$ 395,850 (for 1998-99 the total was US$ 473,476)
Achievable Export Sales for the following 12 months was estimated with a basis as US $ 900,000, if the funds were made available on time.
We pressed for a limit of Rs 75 lakhs as originally requested, and the Bank sanctioned Rs 45 lakhs during December 1998, which we refused to accept.
Orders on hand for the next 6 months amounted to US $ 340,525/= .The Buyer during a visit by the Director to Canada had indicated an off-take of as much US $ 700000. This together with definite prospects of exports to Argentina, Brazil and USA were discussions were held with important Buyers during the Buyer-Seller meets led by the Additional Textile Commissioner who was also the Executive Director of the Export Promotion Council.
All this was stated in our communication dated February 3 1999 and it was emphasized that "in terms of direct face to face contacts the company had as many as 200 [ short-listed ] Buyers to work with" which was enough of a base to build up an "Export House"
The cycle time and profitability issues were presented and elaborate workings were shown to press for a PC limit of Rs.75 lakhs (and an FUBP limit of Rs.110 lakhs).
Attention was drawn to the procedural problems experienced at the branch and the bank was requested to minimize procedural difficulties and make the PCL and FUBP limits flexible. Required papers and working were submitted along with.
[ By this time, in the absence of term loan support, the company had built up an in house tailoring unit, an electric baling machine, office assets as also built up a prime office building, a factory building and had also acquired 28 shuttle weaving machines to weave terry fabric].
The director met with the Assistant General Manager at Chennai on 9th March 1999, and on the following day a letter was sent on 10th March 1999. One of the Bank’s concerns at this point of time was that the company had obtained a sanction from SIPCOT for a Term Loan of Rs.150 lakhs. The details of the sanction were presented in the letter dated 10th March 1999.
It was clarified that the collateral security lodged with SIPCOT was different from the security offered to Federal Bank. It was also explained that the term loan was not availed. Attention was also drawn to the fact that the term loan sanction from SIPCOT was for the very project proposal that Federal Bank did not entertain. Following this meeting the bank insisted on an assurance that we will not avail the sanctioned term loan from SIPCOT without the approval of Federal Bank. So on 26/03/1999 an undertaking of seven points as suggested by the bank including "We hereby undertake to "inform" M/S.Federal Bank Limited before availing the above said term loan by M/S. SIPCOT limited, Chennai."
The undertaking was enforced on us even after it was clearly shown that we had already qualified for the term loan and that the source of additional promoter’s contribution was external to the current sources and that the collateral security offered was a different property as distinct from the collateral security offered to Federal Bank, for the existing Rs.38 lakhs limit.
After all these assurances that the bank was awaiting for, Rs.60 lakhs as PCL was sanctioned (and a FDBP / FUBP limit - the bank never allowed us to do business on non L/C terms- of Rs.75 lakhs) ,vide sanction order no.00097 /MDSR /PF/1353/FEX/69/99 dated 30/03/1999.
Out of the Rs.60 lakhs the bank required the actual L/C document on hand to avail Rs.10 lakhs out of Rs.60 lakhs, which rendered the sanction effectively as a sanction of Rs.50 lakhs with procedural strings attached to the remaining Rs.10 lakhs. In reality, all orders that we accepted at that point of time were on L/C terms, but by practice L/C document was never received before the actual time of shipment. (FDBP was to be granted, as per the terms of the sanction against L/C / Orders and FUBP was to be granted against L/C Only. FDBP / FUBP together amounted to Rs.75 lakhs but in practice the company was never allowed to avail the FUBP sanction because the bank refused documents even when there was proof that the L/C was in transit.)
Procedural formalities as usual delayed the usability of the sanction and even as on 5th April we were submitting requirements for special permission to avail loans of amounts as low as Rs.2 lakhs when the sanction was for Rs.60 lakhs.
With regard to the FDDP sanction the bank not only refused to encourage exports on non L/C terms, but even with our existing buyer, even with an L/C on hand, the bank resorted to treating the bills as eligible merely for the RABC facility.
RABC was a so-called facility by which the bank sent the bills for collection, without treating the bills as purchased. RABC reduced the drawing power not only from the FDDP/ FUBP limits, but also affected the drawing power of the PC Limits, to the extent of the value of the bills treated under RABC.
A shipment of Rs.832,986 was treated as RABC on march 3, 1999 and the branch chose to "hold" the amount even as on May 5,1999 when we wrote to the AGM, also informing him that the company had received confirmation that the Buyer cleared that goods and accepted the documents as per terms of the L/C. It was pointed out that we also had an ECGC limit of Rs.15 lakhs for our Buyer to meet contingencies like this transaction (ECGC cover was insisted upon by the Bank - one cover for Export transaction risk with a 0.19% premium paid directly by us even for secure L/c based transactions and another cover to secure the Bank's PCL risks for which the Bank charged premium to our account as remitted.)
It was actually an L/C transaction treated as a non L/C transaction by the bank. Documents were mailed to the Bank of Montreal invoking the terms of the Letter of Credit, but treated as RABC locally. After several meetings and written communication we were allowed to avail the Rs.8.32 lakhs during the third week of May 1999.
This sanction came not before we troubled our buyer to ask the Bank of Montreal to send a telex message to Federal Bank stating that the payment was due on may 21, explicitly stating "you may release reserve, if any". (It has always been our responsibility to verify the status of payments by the Bank of Montreal through our Buyer. The Bank seldom followed up on the Bills negotiated.)
While our progress improved from US $ 106,600 in 1996-97 to US $ 473,476 in 1998-99 a four-fold growth of performance in 3 years (in spite of all the banking problems) the bank had
- Refused to consider a promising proposal for creating manufacturing facilities
- Blocked us from utilizing a term loan of Rs.1.5 crores sanctioned by SIPCOT
- Took our 180 days to partially concede to our requirement as PCL of Rs.75 lakhs
- Took 700 days to fully sanction our requirement in full, by white time the sanction was too little.
Prevented us from moving to any other bank which could have more responsive. (On record the Bank blocked South Indian Bank from granting us a Packing Credit and Cash Credit facility totaling Rs 160 lakhs during August 2000. Earlier State Bank of India offered Rs 120 lakhs prima facie, but the following day there was a complete overturn, and when pressed for a reason there was an inquisitive discussion on our relationship with Federal Bank with a particular reference to the Branch Manager who had been transferred.) IDBI, Coimbatore returned our detailed project proposals prepared in the required format with elaborate workings seeking a Term Loan of Rs 5 crores verbally assigning the reason that IDBI's experience with Terry Projects have been unpleasant, all the Terry Projects taken up by IDBI, not only from Coimbatore, but from around the country invariably failed. It is not known if Federal Bank had offered a opinion to IDBI, Coimbatore.
The PCL request for our financially determined requirement of Rs 75 lakhs was originally submitted on 22/09/1998. The bank by its sanction dated 30/3/99 sanctioned Rs.60 lakhs, which by itself was not a clear useable limit. It further took disbursal delays. It was only on 23/08/2000 that the bank sanctioned limits as requested at Rs.80 lakhs (by which time we had received a series of time-sensitive orders totaling Rs 3.43 crores, which pushed our requirements to as much as Rs.160 lakhs of Packing Credit). The bank effectively took approximately 700 days to respond to our requirement by which time we had lost several orders for want of funds, lost on reputation for timely execution of order accepted, incurred higher cost of production, incurred overheads non- productively and had our growth prospects badly hurt. Enough and more damage was done to our finances by all the time delays. Time delays by the bank was in processing our requirements was the primary reason why our shipments were delayed, and led to a slowdown in performance. The bank did not acknowledge its own role in our reduced performance when it sent an advance letter on 04/11/1999 that one of the packing credit loan amounting to Rs.3.75 lakhs drawn on may,18,1999 would fall "Overdue" as it would reach 180 days two weeks hence, on 18/11/1999. (This was eventually closed on 3/12/99)
By October 1999
we had we had commissioned 22 out of 28 terry weaving machines and the machines were operational.
Our factory building for the tailoring unit of 5000 square feet was built up with 24 sewing machines and an electronic baling machine operational.
Our buyer from Canada visited us at Erode and we discussed various aspects for a week.
Our performance was ALL SET to leap up with orders placed on Nov 5, 1999 by our Buyer alone amounting to US $ 803,750 (equal at the day's exchange rate to Rs 3.43 crores) to be shipped out during January - October 2000 vide purchase order EA No.5133,5134 and EA 5135 confirming terms of payment as L/C 30 days. The orders were for 10 x 40' container volumes of shop towels (3000 bales), 30240 units of 3 ply Diapers and 1,36,260 dozens of Terry Towels.
All of the orders placed were of revised specification, so goods were to the produced afresh, and it required swift action. These records were immediately presented to the bank and nothing happened for 3 weeks
By our letter to the bank dated 26/11/1999 it was shown that Rs.2.3 crores out of Rs.3.4 crores worth of orders were to be shipped within the next 120 days.
As on this date our PCL still remained as Rs.60 lakhs with immense procedural difficulties preventing us from availing even the Rs.60 lakhs sanctioned in full. To execute the orders on hand of Rs.3.42 crores -out of which 2.4 crores worth of goods were to be shipped with the next 120 days- we required sufficient limits ( our requirement was verbally explained as a PCL of at least Rs.160 lakhs) to be made available, and we even proposed that the limits be sanctioned as temporary limits, in order to make the bank feel comfortable.
The bank was silent. Nothing happened until Jan 14,2000 and the Buyer was alarmed by the production delays (that resulted from the bank’s unresponsiveness). Eventually we agreed for a reduction in the volume of goods ordered as follows
Reduction in Quantities
Terry Towels agreed as 93150 doz in place of 136,620 doz.
Shop towels agreed as 2040 bales in place of 3000 bales
Delivery Schedule
Terry Towels Remaining for the first order, stretched by 30 days.
Shop Towels Time for the First remaining order extended by 5 week
The Revised schedule was submitted to bank and on 29/02/2000 we pointed out that the orders on hand far-exceeded the available limit of Rs.60 lakhs. Even at this time we were making requests and special requests to make the Rs.60 lakhs fully available.
While we were servicing our production requirements part by utilizing facilities in-house and part by sub-contracting our production process, our infrastructure needs were increasingly felt time and again it was pointed out to the bank that quality and cost factors make it imperative that we build up in house facilities.
With the term loan from SIPCOT still unutilized, the company wished to make use of an unique opportunity made possible by a special fund for Textile Industry Modernization called TUF scheme announced by the government of India. By this scheme Rs.25,000 crores were made available for funding textile modernization. Longer repayment periods at 5 % lower rate of interest and a highly encouraging funding environment together constituted an opportunity for us to seek funding under TUF .Our technical expertise and understanding of manufacturing technology and processes now covered spinning, yarn dyeing, Fabric weaving, Terry Weaving, Fabric processing, tailoring / garment making.
By this time direct contacts were established due to participation in two separate trade delegations - one to African countries and another to Latin American countries. The Director of the company had also traveled to the United States, Canada and several European countries three times and in all these destinations, businessmen in the same line of business were met with, samples presented, requirements examined, discussions were held on pricing and supply position. During these several visits it emerged that it was essential and attractive to have full fledged manufacturing facilities in order to be attractive as also be competitive and profitable. With a vendor-reliant operation, it was proving extremely difficult for us to control quality parameters and delivery commitments and more than a due share of profits were parted with. It became evident that our own integrated manufacturing facilities would enable us to comfortably commit for higher volumes of orders, for high value products and retain larger profits due to in-house value addition for which we were technically knowledgeable and competent. We also had a need for infrastructure in order to optimally produce for existing buyer's requirement.
With exhaustive first hand knowledge about plant and machinery required for weaving and processing (The Director has had a practical orientation to manufacturing technology and has visited a technical exposition with operational machines in Italy for 11 days; several plant visits in India and abroad followed. It is necessary to state here that the Director of the Company has acquired enough knowledge to design a factory and determine the machine layout for a manufacturing plant; he could evaluate and choose an optimal line of modern machinery as good as an experienced Technical Consultant; has been extensively negotiating with machinery suppliers from the world over as also kept in constant contact with several renowned dealers of pre-owned machinery from around the world.) We proposed an integrated, modern, export-oriented shuttleless terry weaving and processing plant of project cost Rs 558.25 lakhs, to be implemented in two phases so as to make the bank feel comfortable about the risk perceived. A fairly accurate project cost summary and preliminary papers were submitted on 18th April 2000.
The same day we presented detailed workings outlining the orders on hand from our Buyer also indicating anticipated orders from a larger United States company. Our conservative estimate of achievable turnover was Rs 4.5 crores for the following 12 months. We sought Rs 120 lakhs as a Packing Credit Limit and Rs 120 lakhs as FUBP limit. We requested the bank to appraise with "a total and complete understanding of our needs"
The proposal for funding under TUF (which fully qualified fro IDBI refinance) was not taken up by the bank.
Nor did the bank act upon our packing credit requirements. Limits sanctioned remained unaltered and remained firmly inflexible. Even on June 4, 2000, we were making special requests to the bank to allow us to overdraw by Rs 50,000 over and above our sanctioned limits of Rs 60 lakhs. Such contingencies are considered part of business and it is a practice of good banks to trust the branch management with discretionary ad hoc sanction powers of up to 25% of the sanctioned limits over and above the limits sanctioned by the sanctioning authority. Whether or not this Branch had such powers is unknown, but it was always maintained that the limits sanctioned by a higher authority than the Branch Manager can not be altered by the Branch Manager, even marginally. This has been the position of various Branch Managements, which made the limits inflexible.
Again during April 2000 the bank was concerned about our Term Loan sanction from Sipcot, so we assured the bank we have not availed the term loan, that it was under reappraisal and that we wished to have all our financial needs met by the Bank. We further requested the bank to appraise our proposal for term loan.
As on 3rd July we were still in a situation wherein we had to submit a special request even to overdraw by Rs 1 lakh.
On July 11, 2000 we clarified the bank's queries with emphasis on the production cycle time.
[ Production cycle and working capital requirement in Textile Industry, which is one of our nation's backbone industries, is expected to be understood by the lending institutions , as there have been several studies on the subject by the Reserve Bank of India and other Government bodies. For instance the Tandon Committee Norms on working capital finance clearly spell out probable requirement in terms of number of days of inventory holding for inventory in various stages of processing. This has been accepted by various lending institutions as a guideline. The bank raised queries after queries about our production cycle time, seemed not to understand the concept of production cycle time and we over and over again prepared papers after papers to show and illustrate the number of days / weeks of inventory required in the form of Raw Material, Work in Process in Warping, Work in Process in Weaving, Work in Process in Processing, Work in Process in Tailoring and in the form of Finished Goods. The bank chose not to take note of the actual requirements.]
Again in the same letter dated July 11, the bank's concerns abut our Term Loan from SIPCOT was answered. Orders on hand and prospects were shown again and our request for enhancing the limits to Rs 120 lakhs of PCL and Rs 120 lakhs of FUBP were repeated.
By the time the sanction was issued by the Foreign Exchange Department of the Head Office vide sanction order number 0136 dated 23/08/00/ERD/MDS sanctioned a PCL of Rs 80 lakhs and FDDP/FUBP limit of Rs 95 lakhs. On 30/8/2000 the bank completed documentation formalities (every time there was any change in the limit, be it temporary or permanent, fresh agreements were elaborately signed and fresh documents executed)
What was our requirement 2 years ago was sanctioned and by the time it was too little, too late.
Our shipment schedules were badly hurt, our Buyer's prospects were damaged, our reputation as a dependable supplier was damaged and it was well past time to retain the orders of Rs 3.4 crores paced in November 1999, which required as much as Rs 160 lakhs of PCL alone. 80 lakhs was granted after all the time elapsed for the time-sensitive valuable orders that could have elevated us into much higher position considering the fact that our growth had been four fold in the first three years. The sanction did not come in Nov when we had 3.4 crores of orders, it did not come when our buyer revised the quantity downwards with an extended schedule on January 14, 2000.
Even by the revised schedule the whole series of shipments were to have been largely completed by July 30, 2000 (latest possible date of shipment as agreed in order to "arrive in Montreal on15th September". What remained when the sanction was issues was one container of shop towels of value Rs 19 lakhs.
It was as if the bank was waiting for the orders to elapse before a semblance of facilities were granted.
The damage was done. The delay in sanction and the insufficiency of it hurt our prospects and the damage spilled over to affect our Buyer's prospects. Even then on February 7, 2001 a fax message was received that the Buyer could take three more containers of terry towels and one container of shop towels of approximate value Rs 50 lakhs. There was a sharp note that "it was important for us to know if the above schedule can be respected".
The schedule given allowed no room for confirmation. The first two containers of terry towels required allowed virtually no time for production, but the remaining one shop towel shipment and one terry towel shipment were completed as under
February 7, 2001 - shop towels shipped for US $ 43,680
March 8, 2001 - terry towels shipped for US $ 23,595.
It required several visits to the branch, a few visits to the Regional office and Head office, over 400 elaborate, time consuming letters, several fax and email messages to obtain, avail and operate the limited limits, which were always too little, too late, with total disregard to our capabilities, performance, growth record and prospects. The bank was cripplingly conservative and far too security oriented.
What ought to have been less than a clerical work, required the Company Director’s direct involvement, taking his time away from valuable and important matters to unnecessarily imposed compelling banking formalities, which not only wasted valuable time and diverted focus, but kept the financial position uncertain - ALL THE TIME. Procedural difficulties were such that for the first 18 months of operation the company had a practice of transferring packing credit loan in lump sums of Rs.10 or 15 lakhs when the actual requirement for the day was Rs.1 or Rs.2 lakhs so to say.
To avoid uncertainties, we transferred larger amounts at one stroke to our current account at the same branch, which did not pay interest for the interest-charged PCL transfer. This was to avoid uncertainties and unwanted unforeseen objections by the branch citing trivial imaginary procedural problems.
The bank did make administrative changes at the Branch level, by way of transferring one officer and one Manager, but after three years of procedural hardship and arbitrary demands, the new Branch Manager was posted perhaps to restore the Branch Administration and in complying with this requirement for this Branch which required a lot of administrative attention, the new Branch Manager was perceivably far too cautious and conservative. The excessiveness in caution reflected badly on our account which had suffered from the absence of such discipline at the Branch level for 3 years. Our prospects were hurt in the absence of order as also because of excessive order at the Branch level. The limits granted by the Head Office at Rs 80 lakhs was kept frozen by the Branch Management when we had a dire need for a certain flexibility in operation.
Every time limit was temporarily sanctioned and every time the temporarily sanctioned limit was made permanent and every time there was an enhancement some kind, elaborate legal/documentation formalities were carried out which by itself was time consuming and time delaying process.
All along our communication with the Bank has been vivid, expressive and exhaustive, be it in personal meetings at the Branch or Higher Offices, or in the form of written communication by letter, fax or email, or in the form of a proposal with workings The bank was completely aware of our requirements of the level of funds that we required to service the orders on hand; the bank was aware that our production was increasingly delayed for want of funds; the bank knew that we were trying to compensate for the absence of bank's support by resorting to the relatively expensive market credit; that our choice of suppliers were limited when we required supplies on credit; that it was expensive for us to maintain even a part of our delivery commitments, expensive for us to maintain quality on credit terms - The bank knew all this and more. The bank chose to disregard our requirements and the business on hand and the prospects were hurt and damaged.
For the past 18 months we have been requesting the bank to assess our requirements comprehensively and the Bank does not pay attention. A letter was addressed to the Chairman on 10th December, 2001 direct by email to the Chairman's email address and a copy of it sent by courier, and reminders were sent to follow up and there is no response from the Chairman of the Bank.
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 attention by the top management of the bank, assistance, guidance and support to make this unit realize its promising potential. The 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. Various studies reveal that there is wide scope for further enhancement of textile exports. On the overall export front, the current economic survey points out the dismal performance of the export sector in our country. The export growth is only 0.3 per cent. We need to export more but if the banking system does not support the exporters with a positive approach, our exports can not increase. Instead of providing an impetus, the approach of banks like the Federal Bank thwart the existing potential for exports.
We emphasize that
The company has put forth substantial efforts to expand its market. Its website www.whitefieldcotton.net is being increasingly noticed by many prospective textile buyers from around the world. Through the Internet the company is receiving valuable enquiries every day.
We have built up some infrastructure facilities. But because of the unhelpful attitude of the bank we are unable to do optimally utilize the infrastructure built up. Besides the bank does not allow us to make the facilities more integrated and modern, despite the Government's thrust in the form of schemes such as the Technology Up gradation Fund. On the other hand, the bank is throttling us by keeping our limits frozen.
This amounts to extinguishing our business, though it is neither in our company's interest nor in the bank's interest.
Our liabilities have become overdue. We are making arrangements to clear all the interest liabilities. The proposed sale of the family owned property is taking time to materialize. The company requires time to pay up the interest, especially because it is now family owned/generated funds that meet the present overheads and maintain minimal operations in the absence of our inability to accept valuable orders.
We proposed to take up yarn exports which would boost our export performance. When facilities were sought giving various options for the bank to consider, the bank chose not to take notice and let the opportunity slip by. We would like the bank to give us a commitment that it would facilitate yarn export transactions.
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 in house processing facilities. If this is not possible we request the Bank to grant us minimal term loan facilities that we require immediately to balance our present manufacturing facilities. We are ready to offer additional 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 unfavorable to this proposal and we were unable to make progress with our applications to the institutions due to this reason.
What is required is a comprehensive assessment from the Bank of our capital and credit needs. We have been making this request for over a year now. At the moment any fresh order accepted requires fresh production and additional funds. The absence of support, even at this delayed stage, would degenerate a prosperous establishment with a promising growth potential. A comprehensive solution to the present cash flow difficulties and the infrastructure needs is sought from the bank.
We have appointed an experienced financial consultant to prepare a comprehensive revival plan which is already prepared as a draft. We are in the process of finalizing the plan. We require the Bank's support to present and implement the plan.
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. The bank's support and guidance is required to turn this unit into one of the best textile manufacturing unit in South India.
We look forward to a broader assessment and a positive response from the bank. 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 the bank for this original assistance and we still believe that a clear understanding of our requirements by the top management would enable us to emerge as one of the best performing textile establishments in India.
We had presented the case in detail to the Chairman of the bank through our letter dated December 10, 2001. But we have not received a reply, not even an acknowledgement from the Chairman, despite reminders. The bank is now hostile and refuses to extend support. The bank is not assuming the advisory role expected of it.
We are very eager to perform, expand and clear the bank’s liabilities and contribute to the country’s export growth. We are therefore, approaching your office to interfere and advise the bank to be reasonable, consider our financial requirements, associate with us in preparing a revival plan and encourage us and enable us to become a significant contributor to our nation's economy.
We look forward for a positive and timely response.
With regards,
Yours faithfully,
For Whitefield Cotton Private limited
M Sivasubramanian
Director
Cc to
1. The Hobble Minister of Commerce, Government of India, New Delhi ( with a request to intervene)
2. The Hobble Minister of Finance, Government of India, New Delhi
3. The Textile Commissioner, Mumbai ( with a request for his immediate intervention to solve the problem)
4. The Governor, Reserve Bank of India, Mumbai
5. Shri K P Padmakumar, Chairman, Federal Bank Limited, P B No. 103, Head Office, Aluva 683 101
Whitefield Cottons P Limited 389/2 Perundurai Road Erode 638011 India Tel ++91 424 269853 / 54 / 262285 [ old phone numbers ]
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Whitefield Cottons P Limited 389/2 Perundurai Road Erode 638011 India Tel ++91 424 2269853 / 54 / 2262285 [ old phone numbers ]
http//www.whitefieldcotton.net
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