2003 September 2 to RBI

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

Dear Madam,

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

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

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

In summary our complaint was about the following

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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