Blame It On The Law

AS the debt trap looms larger than ever, the most law-abiding of citizens can turn artful dodgers. They are helped by India's sluggish legal systems and inadequate infrastructure. Take non-repayment of credit card bills. In the case of consumer finance, there is at least a tangible asset—the washing machine or the car—that the company can try to seize and recover some, if not all, of its out standings. Not so for credit cards. Says Sunil Saxena (not his real name), who never paid any bills on the two cards he owned: "First they sent letters, which kept getting nastier in tone. Then they sent a man around. I told him I wasn't going to pay and he could go to court if he wanted to. The man admitted that the bank didn't want to do that because it would entail a long-drawn-out and messy process. I haven't heard from them again." Saxena has since acquired two more cards—one, in fact, from one of the banks he defrauded—and is living it up.

The key problem here, of course, is that unlike in the developed world, Indian credit card issuers have not yet begun sharing data on defaulters. Since Indians have no social security number or any such permanent identification, an R. Ramachandran can resign from his Delhi job, spend madly on his credit card and resurface in Hyderabad in another company, conceal details about his previous address, thereby getting a card from the same bank. And, credit card marketers in India often find it more cost-effective to just write off the unpaid amount—after trying to recover it for six months—than to pursue it through litigational labyrinths.

Sometimes, too, the marketers' eagerness to sell cards is to blame for their troubles. A few years ago, a telephonic payment chase-up service for a leading card discovered that one of the bank's sales agents had sold dozens of cards in Old Delhi by telling prospective clients that for a month they could pick up anything gratis from each of the member establishments. The bank wrote off the amounts as bad debt.

All consumer goods financiers today use collection and repossession agencies, an euphemism for goon squads. "These are usually owned by ex-cops and ex-army men who run teams of out-of-work toughs who get a commission on all the money they can collect," says a senior executive with a foreign bank. "If that commission is 1 per cent, they're slightly restrained; if it's 10 per cent, they'll do anything, including break a couple of legs to get the money back." But all this works as long as the asset is something like a vehicle which can be seized on the road. Try to grab a TV or a VCR from inside the defaulter's house, and a nasty debtor can create a hue and cry about attempted rape and so, the moment a repossessor crosses the threshold.

Lodging cases of assault, attempted dacoity and so on against the repossessors and then letting the courts mull over it for years constitute a common ruse to neutralise pressure tactics and stall the whole process. And though bouncing of cheques is now a cognisable offence, no financier wants to get into the interminable legal processes. That is why the unwritten law of consumer financing in India is: don't lend to lawyers.