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Monday, Dec 23, 2002

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Walking on thin ice... to get back the dough

N.S. Vageesh

CHENNAI, Dec. 22

A COUPLE of years ago, a finance company executive was hot on the trail of a truck operator who owed money to his company. Whenever the executive visited his house, the operator managed to give him the slip. Finally, the executive got an opportunity. The defaulter happened to be at home because of a death in the family. The executive was tempted to bring up the matter of arrears, but refrained from saying anything. Quietly expressing his condolences, he left the place.

A few days later, he had a visitor - the defaulter himself, who had come to settle all his past dues. He said to the executive " I know why you came that day. You could have easily embarrassed me in front of my relatives, but you didn't. I have come to settle my balance". The approach of the executive to the problem earned him a pat on the back from the company management and had won over a defaulter.

Cut to another scene in the eighties. A top secretary of the Union Government is pulled out of his car by a couple of "recovery agents" hired by a foreign bank for an alleged default of a car loan - when it turned out that it was a case of mistaken identity. The issue finally ended in the bank's India head having to apologise personally to the secretary. But not before the episode had earned the bank a notoriety that it still is struggling to live down.

These are two sides of the recovery phenomenon. One which was handled with considerable diplomacy and the other with muscle-power. Banks and financial institutions now have to straddle the world that lies between these two extremes as they weigh the pros and cons of "outsourcing" their recovery efforts.

Business World reports in a recent issue that the Maharashtra Industrial and Technical Consultancy Organisation (MITCON) and Industrial and Technical Consultancy Organisation of Tamil Nadu (ITCOT) have taken up some "recovery" assignments on behalf of banks and institutions.

Bank of India has hired Deloitte Touche Tohmatsu as agent to recover its NPAs and is open to appointing more such special agents.

For banks, which are still coping with the post-VRS glitches, the prospect of outsourcing the chase and recovery may seem attractive. Deploying the existing branch staff, who are already burdened, for recoveries is a difficult option.

At the same time, many banks are slightly wary of appointing external agencies for the recovery process. "They may earn us a bad name with their rough tactics," says a banker.

A couple of finance companies have had the experience of their senior staff being arrested because of a counter-petition filed by the defaulting borrowers who suffered at the hands of some "agents".

The temptation to earn the commission plus the seizure charges of around Rs 2,000-3,000 makes some of the recovery agents get into the violent mode and rough up the defaulting borrower.

At a recent meeting, the Chennai police Commissioner is understood to have cautioned companies about hiring "riff-raffs" for such jobs. That, perhaps, applies to banks too.

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