When Life Succumbs to Debt

Another article appearing in Times of India, Mumbai Edition dated 14-10-2008

WHEN LIFE SUCCUMBS TO DEBT
There Has Been An Increase In Serial Borrowers, Who Keep Taking Credit Cards And Loans To Pay Off Earlier Amounts
Bella Jaisinghani | TNN

Mumbai: Desperate times call for desperate measures, though the most drastic option of all is chosen by only a few. The global meltdown has come as a double whammy to overspenders whose backs are already bent under piles of mounting debt.
Instances of Mumbaikars having taken several credit cards or loans just so they can attempt to pay off previous debt are not uncommon. The attempts are usually unsuccessful, as they only end up increasing the credit burden.

In 2006, then RBI governor Y V Reddy noticed how liberal pay packages and unbridled consumerism were resulting in a lethal cocktail. He recommended that banks devise a counselling mechanism to educate people about financial matters—mainly, how to resolve debt issues and how to invest. Bank of India, ICICI Bank and Union Bank took the cue and started such centres across cities and small towns too, since rising credit is not restricted to just urban areas anymore.

Of these, Abhay Credit Counselling Center, which is run by Bank of India in middle-class Prabhadevi, currently has 1,000 desperate borrowers on its counselling list. “Around 90% of these people are serial borrowers. They find it difficult to pay off money owed on one credit card, so they procure another one in the vain hope of paying up on the first. Then they get yet another one to pay off dues on the second,’’ said V N Kulkarni, chief counsellor. “They often do that with personal loans as well.’’

Just two days ago, a 32-year-old chawl resident walked into Abhay demanding that they arrange for an umbrella loan to cover his various borrowings. Kulkarni and his team were shocked to learn that the man, who had old parents, a wife and an infant to support, had taken eight personal loans amounting to Rs 22 lakh. He also had nine credit cards, whose total debt amounts to Rs 9 lakh.

“The youngster works with a private firm and earns merely Rs 10,000 per month,’’ said c o u n s e l l o r A s h o k Kargutkar, himself overwhelmed by the facts. “He even refused to believe he was a defaulter, saying he did pay off a little debt each month.’’ Upon learning that he did not have any assets, like a house that he could sell to pay off the debt, all the Abhay team could do was ask the gentleman to contact a lawyer and file for insolvency.

Part of the blame, no doubt, must be shared by the financial institutions that have been forcing credit cards on customers without checking their credit-worthiness. Kulkarni said that, of late, financial institutions had been distributing credit cards “like prasad”.

Counsellor Peter Fernandes strongly felt that banks ought to tighten the rules and conduct thorough background checks before issuing credit cards to perennial defaulters. “A borrower is not likely to disclose that he has several unpaid loans to his name and the banks don’t care until the client defaults,’’ he said.

Then, when it is too late, banks are known to despatch recovery agents to chase defaulters, often leading to unpleasant consequences. A woman who bought a car just so she could hire it out to a rental company for profit, was allegedly killed by the agency she owed money to. Afterwards, the agency even pressured her husband—who knew nothing of the loan—to pay up the loan. The police then made out a case for murder against the agency, which stopped the harassment.

Occasionally, credit counsellors do meet clients who warn that they will commit suicide if they go insolvent. “We patiently have to advise them that suicide is not an option, that they must learn to face the situation,’’ said Kulkarni. “The debt will remain even if he kills himself. In fact, how will the family manage financially without the man’s support.’’

FAMILIES FALL APART
MARCH 2004: Trader Ketan Anuwadia and his wife Keena killed their two sons, Rishi and Devansh, before committing suicide at their Kandivli residence. Ketan had run into losses of Rs 1.35 crore.

DECEMBER 2003: Santosh Surve, director of chit fund company Kalpavruksha Finance, shot dead his wife and two daughters before committing suicide at their Thane residence. He was unable to repay investors.

MAY 2003: Assistant police inspector Prashant Sawant shot dead his wife and son before committing suicide in their flat in Chembur. He was said to be depressed.