- (Article) Stressed Accounts Management & Financial Stability
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Posted: 04 Sep 2017 01:36 AM PDT
Stressed Accounts Management & Financial Stability “If you owe your Bank manager a thousand pounds, you are at his mercy. If you owe him a million pounds, he is at your mercy”.
J. M. Keynes
Stressed Accounts Management is actually a misnomer. The actual process of managing an account to avoid stress and future deterioration begins right from the very selection of the borrower itself. Simply managing a stressed account, after identification of stress, is nothing but post facto fire – fighting which can be avoided to a great extent by due diligent and an analytical approach at the selection stage.
JOURNEY OF NPA MANAGEMENT:
In order to promote a healthy platform and enable the objective categorization of asset quality in banks, the Reserve Bank of India introduced the Income Recognition and Asset Classification (IRAC) norms in the early nineties. Transparency in disclosing the asset quality would eventually benefit stakeholders, like shareholders, depositors, regulators, etc. This has also drawn the attention of the banks towards emphasizing on monitoring of asset quality on an ongoing basis. Currently, the banking and financial services industry is struggling under the pressure of the corporate loan
‘crisis’, as the number of Non-Berforming Assets (NPAs) in this sector continue to soar. A close scrutiny of the loan sanctioning, disbursement and recovery process have uncovered a number of gaps and inefficiencies. This includes identification and reporting of NPAs. Regulators have taken a note of it and are suggesting a number of steps to tackle this economic debacle. On the other hand, early identification, correct classification and reporting of NPAs require greater focus and improvement.
Regulators are increasing their efforts in curbing the alarming rate of growth in stressed assets. However, one of the less talked about issues here is that how these assets are currently monitored and reported. Banks have their own systems and processes in place for the identification of NPAs and provisioning. The matter for concern is, how foolproof are the systems with respect to allowing possible manipulations and manual interventions while classifying NPAs category.
The key issues that banks are facing today are in the nature of complexities around different systems used for NPA identification and provisioning, over dependence on third parties for technology support, lack of audit trails to identify changes affecting NPA classification, lack of training and awareness at remote branches, etc.
The history of classification of stress accounts:
MANAGING STRESSED ACCOUNTS:
1. Prevention of potential stressed accounts.
This involves right selection of borrowers at the initial stage. The primary reason for high NPAs in Banks is the simple fact that, instead of going to the market and selecting good customers, most of the Banks are depending on a few walk in customers or customers brought in by unscrupulous Consultants. The choices here are limited and the possibility of fraud and misappropriation is high. Most of the corporate customers are referred to the Banks by merchant bankers and loan syndicators instead of the Banks identifying ‘A’ rated borrowers themselves and formulating strategies to get a share in their business. In fact, most of the banks do not have a robust credit marketing system. This could address the issue of unhealthy exposure in the beginning itself.
This gap can be bridged to a certain extent by proper due diligence about the genuineness of the borrower, his track record and the genuineness of his intent based on market inquiry and verification of the various reports and records available in the public domain.
Analysis of technical and economic viability of the project is very important. This requires a significant amount of technical skills. In many cases, the obtaining of a TEV study report is entrusted directly to the borrower without realizing that he can manipulate the report. Another area of expertise is the correct assessment of fund requirement, cash flow and marketability of the product.
The following are some of the issues which call for careful examination.
a) The realistic level of sales based on past performance / industry outlook
b) The utilization of capacity
c) The break even period and volume
d) The requirement funds
e) Cash flow based on the sales and its adequacy to meet the repayment obligations.
Many of the projects are failing due to improper assessment of cash flow, fixing of repayments which do not match with generation of cash and time/ cost overrun leading to the debt mounting to unsustainable levels.
The next area requiring focus is to ensure that the assets are created and funds are not diverted elsewhere. This should not end at the installation phase, but continue on a continuous basis. Such monitoring will ensure that not only the term loan component, but even the working capital is also not diverted. Hence Credit Monitoring during Pre-disbursement; during disbursement and post disbursement is very critical in maintenance of asset quality. Disproportionate blocking of funds in receivables and not routing the transactions through the account should not be allowed. This will also prevent any possible diversion of funds.
2. Initiating timely action upon identifying stress
Once stress is detected in an account, the first thing one must do is to assess the triggers of stress. It could be any of the following reasons.
a) Due to diversion of funds
b) Low market demand
c) Blocking funds in receivables (In conducive to the business profile)
d) Slow picking up of sales
e) Using working capital for long term investments
f) Other reasons,
(1) On-site Internal Signals.
(2) Off-site External Signs
Once the account is under stress corrective action is to be initiated immediately or else it will result in the mounting of interest and the debt reaching unsustainable levels.The required corrective action will be different in each case. Say for example, if diversion of funds is established, the borrower should either bring the diverted funds back along with the margin or else legal action should be initiated immediately.
In case the issue is of low market demand for the manufactured product and there being no provision for switching over to an alternate product, it is better to prepare ground for exit in the initial stage itself. It is
observed that many new generation banks make an early exit in such cases, by compelling the borrower to leave by raising the rate of interest or stipulating new terms & conditions. Though re-scheduling is an option in case of ‘c’ and ‘d’ above, it is always better to create ground for exit or impress upon the borrower to bring additional capital or a strategic investor.
In case of ‘e’, even though it is an irregularity on the part of the borrower, the issue can be addressed by reimbursement of capital / long term expenditure; if the working capital funds are genuinely utilized / diversified for creation of assets like plant & machinery or equipment needed to run enhance the problem or by way of extending the required working capital if the increased capacity can be productively used to increase production and sale.
Where the market and industry conditions are not conducive, borrowers and lenders can resort to bringing down the debt to a sustainable level by selling off the noncore assets or inviting investors for a stake in the company by converting the unsustainable portion of debt into equity.
Change of Management outside SDR can also be thought of as a good strategy for management of stressed assets /NPAs. Banks can also explore the option of converting a part of the debt into equity through SDR route. This can be off loaded within 18 months and Bank can retain the IRAC status till then, at the same time working out alternate plans for a change in the management of the unit.
Even, as per latest RBI guidelines issued on 25th February 2016, fraud accounts can also be restructured with dispensation of keeping the account as standard; provided change of Management happens. The idea is that it’s not the business commits fraud, its promoter/ person who commits fraud.
The new scheme of S4A is also more or less on the same lines of separating sustainable from unsustainable debt and can be explored in such cases.
(3) Revival strategies are not viable, initiate recovery proceedings.
Banks can initiate SARFAESI action and take required steps in a time bound manner. Wherever the borrower is likely to go for a stay order from caveat be filed. Wide publicity be given for auctions. Uncharged assets to be identified and attached through court by filing ABJ (Attachment Before Judgement) along with the Original Application with DRT.
Declaring the borrower as a wilful Defaulter and a Non Cooperative Borrower will stop the company or promoters or other companies of the promoters from availing credit facilities from any other financial institution.
Publishing photograph of defaulters will put pressure on the borrowers/ guarantors. In case of companies, filing of winding up petition can be thought of. The option of the attachment of debts of the company and getting a garnishee order can be explored.Filing case under section138 of Negotiable Instruments Act if a cheque given by the borrower has bounced. Each file is to be studied minutely in order to understand what kind of action is required in a particular case.
CAUSES:
1. Fundamental Reasons :
The first important reason is the lack of due diligence, post sanction inspections, monitoring and audit alongside a weak governance mechanism to check corrupt practices and political interference. This often leads to the diversion of funds into creations of personal assets.
2. Corporate Imprudence:
The imprudence of the corporates can be considered to be the second most important factor for poor asset quality in the system. Some of the major failings that the corporates exhibit are:
3. Corporate Misdemeanors
Not all promoters have a same inner voice and some of them are out to hoodwink the system. They are hardheaded defaulters in banks' books as they have been unwilling to respect their repayment commitments,
even while having an ability to do so. A section of the promoters have redirected funds for purposes other than for which the money was granted. There are similar events where a section of the borrowers have redirected reserves for individual extravagance and indulgence and not created any gainful asset. Some promoters have disposed of assets created out of Banks funds without the information of the Bank. The resulting defaults are intentional and hence wilful.
The mistakes of the banks and corporates, whether coincidental or purposeful, have brought about a gigantic heap up of non-performing assets in the Banking industry. While the banks were expected to prevent credit risk concentration, particularly in areas, with unreasonably high risk, the corporates should have had better understanding of the emerging market.
4. The Environment factors:
The economic downturn, since the Financial Crisis in 2008, can be considered one of the significant reasons for the Asset Quality issues in India. There are other issues as well, like fall in prices, dumping by China and so forth which has impacted competition and resulted in the creation of idle assets. The policy logjam added fuel to the fire. The growth in large scale ventures in the nation have remained slowed down because of absence of clearances, cancellation of coal blocks, falling through of the fuel supply, etc.
Such promoters can't be termed as willful defaulters or such lenders can't be called to have malafide intentions, but it sure leads to financial instability. While we battle to address these issues, the priority is in focusing on remedial measures;
The Remedial Measures
The deterioration in the asset quality in India for the first time has been influenced powerfully by the global factors. This is the reason that the simple strategies of re scheduling the loan, acquiring assets through SARFAESI act or settling dues through DRT, is proving to be inadequate. CDR is mostly useful when the industry or the borrowal account is influenced by domestic cyclical factors of Indian economy. But when the impact of global factors start playing and economic revival gets linked to Global factors the models of recovery and paradigm of life cycle of Borrowal accounts undergoes changes .The hesitation to declare different stages of a disease has to change. We as people need to bravely
declare particularly when the critical care is called for, or when there is a multiple organ failure or when the patient is dead.
The model of recovery which was personal contacts, demand notices or filing a debt recovery suit has been changing continuously over the last 50 years or so in order to keep pace with changing times. DRT Act of 1993 gave special teeth to Bankers when Banks were getting exposed to the impact of liberalization on lending and recovery. SARFAESI Act of 2002 brought a revolutionary change as lengthy court procedures gave way to notice, possession and auction sale of assets both primary or collateral. CDR was a more sophisticated version to meet the cyclical misfortunes of any corporate owing to domestic factors. SDR is a great step forward as it aims to eliminate non serious players from the market who probably could not bring the proper management practices. SDR takes the next step of taking a partial ownership and management control, run to revive the stressed assets and finally find a new owner to manage the company and its assets. And finally the SDR which takes care of all listed companies moves to S4A to focus exclusively on companies having extraordinarily high exposures from institutional lenders beyond a threshold of Rs 500 crore.
Since companies with such high exposures impact the financial stability of the national economy, sustainability factor is taken into account. And finally, when the patient is beyond a cure, insolvency and Bankruptcy is resorted to protect the surviving organs, protect them from further decay, keeping the possibility of utilizing them productively by organ transplantation approach.
1. Financial Re-engineering
Financial re-engineering is a multidisciplinary field involving economic theory, statistics, the methods of engineering, tools of mathematics and the practice of programming. The key objectives of financial re- engineering are facilitation of the new budget framework, identification, review and improvement of key process control, improve the efficiency and accuracy of financial data capturing, changing products, systems, people, brands technically, improving in availability and accessibility of financial reporting, decision making
and risk management and continuous improvement. Financial reengineering plays a key role in the customer driven derivatives business which encompasses quantitative modeling and programming, trading and risk management, derivative products in compliance with the regulations and Capital /Liquidity requirements. These things look very complicated or to use Indian proverbial saying “Theoretical”. As the Indian economy gets more and more intertwined with global economy, predictability has to be based upon certain models and theories as gut feelings of Indian businessmen may not be adequate to read the global trends.
2. Joint Venture Fund (JVF)
Recently SBI and a Canadian firm, Brookfield Asset Management Co have proposed to launch a joint venture fund to which the Canadian partner would commit Rs 7000 crore to purchase the distressed assets .SBI would contribute 5% of the investments.
3. Insolvency and Bankruptcy Code 2016
The insolvency and bankruptcy code 2016 will establish some very basic principles of doing business in India. The focus is on quick decision making, be it turn around or liquidation, apart from the early settlement of all stakeholders. Indian promoters have always believed or perceived their right over their business as if it were their divine right, as they were protected by multiple laws and Indian courts. Courts were driven by a concern that in case, insolvency and bankruptcy were to be declared, the resultant closure of any business would mean a heavy loss of livelihood or employment to hundreds of families. The new code snatches away this right of promoters over their business perceived all along these years. But I would request you to appreciate this from the angle of financial stability, as there are more than 5000 cases of insolvency locked up in the Indian courts for years or for decades.
The most significant provision of the codes is the water fall mechanism – Liquidation will be paid in the following sequential manner; Secured creditors, Workmen dues for 12 months, Employees other than the workmen, Unsecured creditors. Government dues have been put in the last. The code protects the interest of operational creditor also besides Banks.
The code will open floodgates of requirement for insolvency professionals capable of objectively assessing business and able to turn around, or liquidate them with a governance framework with minimum court intervention. Once the legislation comes into force new standards of professionalism to match global trends may come up in the natural course. These professionals might be required to shoulder accountability with penal provisions for negligence.
Strengthening asset quality is the second phase of transformation agenda. The finance ministry and RBI had been working on the asset quality review (AQR) envisaging that the stressed assets should be stabilized by March 2017.
Therefore the perceived feeling of some of the Indian Businessmen that all this happened due to an overzealous or premature initiative of the regulator is quite ill placed. It was agreed to between Banks, Government and RBI to consciously move in this direction. Therefore, with this mandate, RBI wants to complete the cleanup of bad loans through AQR by March 2017, and most banks have reported a sharp drop in their profits or posted losses because of higher provisioning to cover potential losses.
4. Central Repository of Information on Large Credits (CRILC)
To address the problem early, a Central Repository of Information on Large Credits (CRILC) to collect, store and disseminate credit data to lenders, has been set up. Under this arrangement, banks are reporting credit information, including classification of an account as SMA to CRILC on all their borrowers having an aggregate fund-based and non-fund based exposure of Rs. 5 crore and above to RBI.
As soon as an account is reported by any of the lenders to CRILC as SMA-2, they should mandatorily form a committee to be called Joint Lenders’ Forum (JLF) if the aggregate exposure (AE) (fund based and non-fund based taken together) of lenders in that account is Rs.
1000 million and above. Lenders also have the option of forming a JLF even when the AE in an account is less than Rs. 1000 million and/or when the account is reported as SMA-0 or SMA-1.
5. Structuring of the credit facilities extended to various borrowers:
Setting realistic repayment schedules on the basis of a proper analysis of cash flows of the borrowers. This would go a long way to facilitate prompt repayment by the borrowers and thus improve the record of recovery in advances. A ‘one size fits all’ approach and providing plain vanilla loans to all clients may not be in the interest of banks as well as its customers.
6. Flexible Structuring of long term project loans with periodic refinancing option (known as 5:25 scheme) In order to effect a structural change in the way project loans are granted by banks, and considering the need to facilitate banks to offer long term project financing, which may ensure long term viability of infrastructure and core industry sector projects by smoothening the cash flow stress in the initial years of such projects. Reserve Bank of India has issued guidelines on Flexible Restructuring.
7. Restructure / Rehabilitation
Despite proper credit appraisal and proper structuring of loans, slippages in the asset quality may not be unavoidable, especially when the economic cycles turn worse. Hence, once a weak account is identified, one of the remedial options is restructuring. Inspite, of their best efforts and intentions, sometimes borrowers find themselves in financial difficulty because of factors beyond their control and also due to certain internal reasons. For the revival of the viable entities as well as for the safety of the money lent by the banks, timely support through restructuring in genuine cases is called for. The objective of restructuring is to preserve the economic value of viable entities that are affected by certain internal and external factors and minimize the losses to the creditors and other stakeholders.
RBI’s prudential guidelines on restructuring of advances lay down detailed methodology and norms for restructuring of advances under sole banking as well as multiple / consortium arrangements.
8. Corporate Debt Restructuring (CDR) mechanism is an institutional framework for restructuring of multiple / consortium advances of banks where even creditors who are not part of CDR system can join by signing transaction to transaction based agreements.
Mere classification of an account as non-performing asset need not result in withdrawal of support to viable borrowal accounts. The purpose of asset classification and provisioning is to present a true picture of bank’s balance sheet and not to stigmatize accounts / borrowers. However, while considering their support to accounts under stress, proper distinction between wilful defaulters / non- cooperative / unscrupulous borrowers on the one hand, and on the other hand, borrowers defaulting on their debt obligations due to circumstances beyond their control should be made.
9. Strategic Debt Restructuring (SDR) Scheme
The Strategic Debt Restructuring (SDR) has been introduced with a view to ensuring more stake of promoters in reviving stressed accounts and providing banks with enhanced capabilities to initiate change of ownership, where necessary, in accounts which fail to achieve the agreed critical conditions and viability milestones. SDR is about taking control of distressed listed companies with an objective to initiate change of management of companies, which fail to achieve the milestones under corporate debt restructuring.
SDR is subsequent to CDR or any other restructuring exercise undertaken by the companies. The consortium of lenders in case of SDR is known as Joint Lenders Forum or JLF, which is empowered to convert the entire or part of the loan, including the unpaid interest into equity shares, if the company fails to acquire the milestones and critical conditions stipulated in the restructuring package.
The JLF has to evoke the SDR within 30 days of review of account and JLF must approve the debt to equity conversion within 90 days of deciding to invoke SDR. The JLF gets further 90 days to actually convert loan into shares. On completion of conversion of debt to equity & take over minimum
51% by lenders within 210 days from date of review, JLF shall hold the existing assets status for another/ total 18 months provided at least 26% is taken/ purchased by a new promoter(out of 51% which lenders took over within 210 days of date of review) and thereafter divert their remaining(25%) holding to another promoters following which the loan will be upgraded to “STANDARD”(if the account is NPA on the date of reference). The new promoters should not be a person entity from the existing promoters / promoters group.
10. Joint Lenders’ Forum Empowered Group (JLF – EG)
JLF will finalize the Corrective Action Plan (CAP) and the same will be placed before an Empowered Group (EG) of lenders, which will be tasked to approve the rectification / restructuring packages under CAPs.
The decision on the CAP must be approved by a minimum of 75% of creditors by value and 60% of creditors by number in the JLF. After a review, the proportion of lenders by number, required for approving the CAP has been reduced to 50%. The top two banks in the systems in terms of advances, namely SBI and ICICI Bank, will be permanent members of JLF EG, irrespective of whether or not they are lenders in the particular JLF.
11. Scheme for Sustainable Structuring of Stressed Assets: (S-4A)
Reserve Bank, has formulated the “Scheme for Sustainable Structuring of Stressed Assets” (S4A) as an optional framework for the resolution of large stressed accounts. The S4A envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt and equity / quasi-equity instruments which are expected to provide upside to the lenders when the borrowers turns around.
A debt level will be deemed sustainable if the Joint Lenders Forum (JLF) Consortium of lenders / bank conclude through independent techno-economic viability (TEV) that debt of that principal value amongst the current funded / non-funded liabilities owed to institutional lenders can be serviced over the same tenor as that of the existing facilities even if the future cash flows remain at their current levels.
To sum up, management of Stressed Accounts Portfolio is an ongoing process starting from the selection of the borrower till the settlement of the account. Stronger the foundation, i.e. the selection of the borrower, lesser will be the subsequent stress and efforts required to manage the portfolio.
FINANCIAL STABILITY:
Financial stability is a prerequisite for the kind of growth we dream of from the sweet spot where India is today. Effective and efficient use of the tools available for clean-up, in the most expeditious manner, is the need of the moment.
The Government and the RBI have embarked upon programmes for containing inflation to tolerable levels, employment generation through big thrust on manufacturing enterprises, and accelerate pace of GDP growth. De-clogging and cleaning up the financing channels have brought us to several initiatives from DRT to S4A mechanisms and Bankruptcy Code which are mainly targeted at large corporates and big accounts which account for major chunk of stressed assets of all Banks.
Banks play a vital role in providing financial resources, especially to capital-intensive sectors such as infrastructure, automobiles, iron and steel, industrials and high-growth sectors such as pharmaceuticals, healthcare and consumer expenses. In emerging economies, banks are more than mere agents of financial intermediation and carry the additional responsibility of achieving the government’s social agenda also. Because of this close relationship between banking and economic development, the growth of the overall economy is intrinsically correlated with the health of the banking industry.
The large amount of stressed Assets in the Banking System had resulted in the slowdown in Credit Growth due to the absence of any fresh funding by the Banks which have directly affected employment opportunities and affected production and thereby leading to fall in the National Income. In a country like India, where Public Sector Banks play a vital role in the development of key sectors, the increase in the Stressed Assets have dried up the resources leading to absence of any major lending activity which tells upon the financial stability of the Nation.
The build-up of stressed loans has led to a slowdown in public sector bank lending in certain sectors. High distressed exposures in such sectors were already occupying Public sector Bank’s attention and holding them back. The only way for them to fulfill the economy’s credit needs, which is essential for economic growth, is to clean up and recapitalize.
Of late, in an attempt to reduce the size of stressed assets in an already expanded balance sheet, Banks have not been lending much and this bodes well for future slippages too. When it comes to choosing between clean up or growth the answer is unambiguously “Clean up!”. Rather, this is the lesson that every other country, which has faced such financial stress has on offer.
The Government is in the process of speeding up Debt Recovery and has already created a new Bankruptcy Code. This is an important step towards improving the resolution process. In the near term, however, the following action will pay large dividends. That is to improve the governance of public sector banks so that they are not faced with such a situation in future. The Government, through the Indradhanush initiative, has sent a clear signal that it wants to make sure that public sector, once healthy, stay healthy.
Conclusion and Future Outlook
Post AQR, challenges abound, even if the Bankruptcy code is implemented. Corporates to a great extent are overleveraged with extremely impaired cash flows. These corporates require capital, new administration and new promoters. Banks are hesitant in increasing their exposures in stressed assets for a number of reasons. It might be very difficult to run unit profitability without bringing down the burden of debt on the corporate. Therefore the first step would be to bring down the debt exposure to a reasonable level. This may include writing down a part of the debt obligation by the lenders and/or converting a part of the debt into equity and get another promoter to run the undertaking. This may, nonetheless, be a time consuming and lengthy process and consequently, in the meantime the banks may need to designate an O and M operator to run the operations. In specific cases, there might be a need for some additional funding for investment or for working capital needs. A major obstacle that one comes across, in the working of the JLF is lack of consensus or slow advancement of consensus among the members of the consortium as also lack of authority at Branch level and, therefore, the resultant action by the unit keeps getting delayed. The delay somehow defeats the very purpose for which the JLF mechanism is set up.
There are some views about setting up an investment fund which might come in as a last mile lender. The investment fund could lend to the truncated enterprise and help it get back to profitability at which level banks could profitably dilute their equity holdings in the firm. Question is who would fund this investment fund? The recent in principle agreement between SBI and Brookfield Asset Management co to launch a joint venture fund could be forerunner to many such ventures of future.
The global economy has been passing through a difficult phase and the vulnerabilities still remain. Against this backdrop and that in a globally integrated economy, a general decline in the asset quality was not totally unexpected. However, the extent being witnessed could have been avoided. It is probably because neither the banks nor the corporates resorted to preventive healthcare.
Amidst the continued global slowdown, the prospect of domestic growth remains positive for 2016-17 mainly on account of various monetary and non-monetary reforms undertaken, expectations of a normal monsoon, easing of CPI inflation and rising private consumption. Focus on rural and social infrastructure sector and decline in subsidy outflow have resulted in improvements in the fiscal front, both quantitatively and qualitatively. One can expect that everyone would emerge much wiser after enduring the pain and be judicious in the approach and get a periodic check-up done so that they can stay healthy and live longer.
The pivots of macro-economic indicator of any economy, namely growth, inflation and employment shape the economic outlook. Individual improvement on these three pivots will have significant bearing on taking out any economy from economic stress which will in turn have impact on financial stress being observed in that particular economy.
The two traditional constituents of growth i.e. manufacturing and agriculture has substantial linkages to the pivots of economic growth. GDP growth coming from manufacturing and agriculture will result into de- stressing the financial sector by turning non-performing assets into performing which will further add to GDP growth. Lower inflation always helps in keeping the interest rate capped and thereby supporting both manufacturing & agriculture which will again add to growth besides credit employment. Therefore, improvement in economic stress will automatically lead to distressing of financial sector.
Courtesy: Dr. R. C. Lodha (Executive Director, Central Bank of India) |
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Posted: 04 Sep 2017 01:36 AM PDT
(Article) Legal Decisions Affecting Bankers - Whether, Bank is liable for deficiency in service? Issue:
Whether, Bank is liable for deficiency in service?
Facts: Smt. Surinder Kaur (Kaur/Complainant) and her husband had joint savings account with State Bank of India (SBI). The Bank had issued two ATM cards both for Husband and Wife at their request. Kaur’s husband was serving in army in West Bengal. His salary was credited to the said joint account by his employer.
It was the case of Kaur that on 15/3/2011 she went to operate ATM of State Bank of Patiala (SBOP/Appellant). After pressing the button of ATM by Kaur for withdrawal of ₹27000/-, the ATM could not dispense the cash and thinking that the ATM may not be working, she went to adjoining ATM maintained by SBOP. At the adjoining ATM she was apprised by some other customer that, she cannot withdraw ₹27000/- at one stroke and as such she withdrew ₹10,000/- from the ATM. She also confirmed that the Balance to the credit of said joint account after said withdrawal was ₹28,967.02 as on
15/3/2011. On 24/3/2011, her husband operated ATM at West Bengal to withdraw from the said account; but he could not get the money due to insufficient funds. On an inquiry, his wife informed him that she had withdrawn only ₹10,000/- not ₹27000/- and account was having balance of ₹ 28,967.02. She made enquiries with SBI and the SBI after checking the account credited
*Deputy Director (Legal), Indian Institute of Banking & Finance.
₹27000/- to the said account on 8/4/2011. However SBI on 15/4/2011 debited said account by ₹27000/-. When her request for refund/credit of ₹27000/- was not entertained by the SBI/SBOP, alleging deficiency in service she filed a consumer complaint before District Consumer Redressal Forum (Forum) against SBI/ SBOP for refund of ₹27000/- with interest @24% from
15/3/2011 till realization. She also claimed compensation of ` 50,000/- for mental agony and physical harassment besides ₹ 5,500/- towards litigations expenses.
SBI filed written statement stating that the ATMs of the banks are interlinked and whenever amount was withdrawn by Kaur, the same will be debited to her account. SBI further contended that the complaint of Kaur was forwarded to their office at Belapur/Navi Mumbai and as per their instructions the amount was credited to her account. Though the matter was taken up with SBOP to reimburse the said amount; but on their refusal SBI debited her account by ₹27000/-. SBOP also denied any deficiency in service on its part by filing written statement by producing various documents. SBOP further denied having knowledge about disputed transaction for want of notice from the Kaur/Complainant.
The Forum after hearing the parties and based on the evidence before it allowed the claim of Complainant Kaur. Aggrieved by the order of Forum, SBOP filed an Appeal challenging the same before State Consumer Disputes Redressal Commission (SCDRC), Chandigarh.
Observations and Decision:
It was the case of SBOP that the transaction for withdrawal of ₹27000/- by the Complainant/Kaur was successful. It could be seen from the entries in Logs dated 15/3/2011 relating to both ATM machines that The Journal of Indian Institute of Banking & Finance as per transaction No. 988, ₹27000/- was successfully withdrawn from ATM machine No. xxx at 14:37:18 with the help of ATM card issued to Kaur. Further as per the records it is apparent that the cash in the ATM prior to said transaction was ₹38,54,400/- and was reduced to ₹38,27,400/- after the transaction (38,54,00 --₹ 38,27,400 = ₹ 27000). Therefore there was sufficient cash balance in the machine to dispense ₹ 27000/- There were subsequent entries of transaction as forthcoming from the log and it goes to show that ATM was indeed working without fault. On the specific demand dated
03/11/2011 by the complainant for production of CCTV footage of the transaction/s; SBOP had submitted that the CCTV footage was not possible to be retrieved after 6 months from the date of transaction. It was also explained by the SBOP that the customers of SBI ATM card holders can withdraw maximum ₹40,000/- in a day and Rs. 35,000/- in a single transaction. The said fact is forthcoming from the records of other customers having transacted accordingly. Therefore it is utter false on the part of Kaur to state that ₹27000/- could not be dispensed to her in one stroke.
SBOP, based on the evidences submitted has proved that transaction No. 988 for ₹27000/- had taken place at 14:37 hrs and after the said transaction/withdrawal, the balance in the account of Kaur was ₹1,967.02. Hence it is false to state by Kaur that she withdrew another ₹10,000/- after failed transaction (No. 988) as it is utterly impossible to withdraw another Rs. 10,000/- when the balance in her account itself was to the tune of ₹1,967.02, (₹ 28,967.02 – ₹ 27,000= Rs.1967.02). Further it could be seen from the records produced by the SBOP that the transaction No. 8561 for ₹10,000/- was made at 14:30:04 hrs on 15/3/2011 and which was apparently prior to the transaction for ₹27000/- made at 14:37 hrs. The records go to show that the complainant in-fact withdrew Rs. 10,000/- at the first instance and there-after ₹27000/- on 15/3/2011 by two ATM transactions. The whole story put-up by the complainant Kaur was false and concocted. She has produced statement of account from 17/3/2011 onwards to show the credit of ₹27000/- on 7/4/2011 and the debit of same on 15/4/2011. She withheld the relevant statement dated 15/3/2011 to conceal actual facts and entries of withdrawals made on that day.
Complainant Kaur makes an application on 3/11/2011 for CCTV footage of relevant transaction after 6 months of disputed transaction as she was sure that same could not be retrieved after 6 months from the date of transaction. Moreover, had it been the case of Complainant/ Kaur that her ATM card was stolen and in such situation CCTV footage could have been relevant. Hence the reasoning of Forum that CCTV footage was not available does not mean that the money could have been withdrawn fraudulently. Her account was initially credited by ₹27000/- on 7.4.2011 but was debited later on 13.4.2011 as per the advice of SBOP. From the logs, reports and other records, it is clear that the there was indeed withdrawal of ₹27000/- on 15/3/2011 and as such the debit of said amount is absolutely based on the said documents/records.
Therefore the State Consumer Disputes Redressal Commission accepting the Appeal of SBOP set aside the order of Forum and dismissed the complaint of Kaur with cost of ₹ 5000/- for presenting wrong and concocted facts in her complaint.
Courtesy: M.G.Kulkarni  |
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