<div>The movie <em>Repo Men</em> (Jude Law, Forest Whittaker) is an extreme version of how this case could turn out. Repo (session) men brutally cut out organs from borrowers who have bought them on EMIs, and have now fallen behind on their instalment payments. Raghav Jaikar, the tailor, should feel relieved they only took his car!<br /><br />Let’s turn from Hollywood to the grim realities of living on EMIs in lower-middle-class India. Viewed in black & white, the obvious victim is Jaikar, and the big bad Ambara Finance is the equally obvious villain. The poor hardworking honest man is only trying to improve his family’s life. The finance company gave the loan under false pretences, and acted arrogantly by seizing the car for a one-day delay in paying the 18th instalment. This is an open and shut case. But there are many shades of grey in other stories being played out every day, and it’s not clear to anybody what should be done to solve the problem.<br /> <br />None of the following practices of Ambara Finance, or other such companies, can or should be condoned:<br />* Not bothering to assess the borrower’s ability to repay<br />* Not fully explaining the terms of the loan in the borrower’s language<br />* Getting blank documents signed and not explaining the clauses<br />* Acting to repossess the car for a one-day delay after 17 instalments were paid on time<br />* The forcible and humiliating repossession itself<br />* The arbitrary and uncooperative stand of Ambara Finance in the legal proceedings that followed.<br /><br />Let’s also not forget what Jaikar could and should have done differently. It is not only the borrower’s right, but also his responsibility, to fully understand the terms on which he is taking a loan. In this case, Jaikar was unfairly “hustled” into signing blank documents, but there is no escaping his own share of blame in acting naively. In the excitement of buying a new car or house, borrowers often get emotionally swept away and don’t bother about things like interest rate, ability to pay EMIs, the possibility of occasional dips in cash flow, etc.<br /><br />Borrowers should choose their car finance company as carefully as they choose their car. Raghav wanted to buy a Maruti because he liked the car’s features and benefits, and also because he trusted the brand. While Ambara Finance was sitting in the car dealership, a typical tactic to make the customer believe that he has no choice about who he can get the car financed from, the truth is the borrower can take a loan from anybody. Jaikar would have been better off getting the car financed from a reputed (not necessarily large) bank.<br /><br />The Reserve Bank of India has very stringent rules for banks (and non-bank finance companies) on how to deal with borrowers. These include:<br />* Recovery agents won’t use physical threat or intimidation <br />* They can’t call at odd times <br />* Banks will be responsible for any undue mental harassment from the service providers<br />* Banks must check the background of its recovery agents.<br /><br />There are enough laws to protect borrowers. But it’s important to remember that at the end of the day, banks have the right to recover the loan, and take just steps to do so. Whenever media reports and public pressure forces banks to “go soft” on defaulters, the result is, invariably, a spate of wilful delinquencies. An example of this is the microfinance imbroglio a few years ago in Andhra Pradesh. A few examples of extortionate lending by microfinance institutions (MFIs) led to a backlash. The state gave in to public opinion and placed severe restrictions on MFIs’ ability to collect money from borrowers. As a result, 90 per cent loans went sour; and many MFIs went bust.<br /><br />We could listen to Shakespeare, who said: “Neither a borrower nor a lender be; For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.” Or, since loans are both a necessity and a reality, borrowers and lenders alike learn to play by the rules, and hopefully Jaikar’s story will be a stray example. <br /><br /><em>The author founded Argus Partners, which places independent directors on company boards</em><br /><br />(This story was published in BW | Businessworld Issue Dated 06-05-2013)</div>
