FISME sticks to its guns against Kotak

Banking Blues

- Foreclosure charges have been demanded even after expiry of loan agreement

- Such practice is breach of the Banking Code

- MSME owners approached police stations, courts and ombudsmen to force Kotak to drop its unethical demands

Ravi Shanker KapoorThe Federation of Indian Micro and Small & Medium Enterprises (FISME) has refused to back off from its tough stand against the Kotak Mahindra Bank. This follows its recent advisory to its members, cautioning them of the lender's 'restrictive and unethical practices.'

"Often, a relationship with Kotak is seen to come with hidden costs, higher interest rates, excessive forex commissions, overcharging for routine services and poor service delivery," the advisory said. There are also "exorbitant demands for foreclosure charges."

Talking to a newspaper, a Kotak spokesman 'vehemently' denied 'each and every allegation.' However, FISME secretary general Anil Bhardwaj stuck to his guns. He told Bizz Buzz, "the non-compliance and other charges imposed on the five whistle blower MSMEs should be revoked and they be allowed to exit. Secondly, the bank should come out with transparent guidelines on non-compliance charges. In case there is violation, the red flag should be raised monthly/ quarterly. Raising the non-compliance charges at the time when customer is exiting must be considered mala-fide and prohibited."

Kotak raises exorbitant demands for foreclosure charges ranging from two per cent to four per cent of the sanctioned limits from MSME customers who wish to exit Kotak, the advisory said. "In some cases, foreclosure charges have been demanded even after the loan agreement had expired, or even when Kotak fully knew that such a practice will be in breach of the Banking Code. In the end, our fellow MSME owners have had to knock on many doors like police stations, courts and ombudsmen to force Kotak to drop its unethical demands."

For the MSME borrowers who intend to switch to other banks, the advisory said, "fake claims in the name of 'non-compliance charges' may be levied. In one shocking case, for a total exposure of Rs3.50 crore of a MSME borrower, Rs59 lakh is demanded as non-compliance charges just to allow an exit from Kotak."

Then there is also the issue of applying debit freezes and dishonoring cheques without any prior intimation, the advisory added.