The Hindu Business Line : Does revival of sick unit mean throwing good money after bad?

STORY so far: When on a visit to the bank, I am surprised that loyal customers are sad that they are saddled with charges for services that were provided free earlier. I wondered if banks were trying to make up for their losses even at the cost of losing goodwill of their account-holders.

Episode 105

Mamata writes, "Hi Swati, there is no logic in the telephone department asking its customers to get signatures attested by their bankers for shifting a telephone. The condition was thought of when the department monopolised the market. In today's time and age this requirement is obsolete. How attestation of signature helps the department is a mystery because neither the credentials of the person nor the residential address is attested." Well, I wish the telecom people take a call on this!

"As regards the debits to customers' accounts for such services I feel it is justified," continues Mamata. "These charges are definitely not for increasing the profitability which depends on a whole lot of other parameters, provisioning for NPAs being the major, among others.

"Another point that needs consideration is that if the signature had to be actually attested by a `Gazetted' officer you would have to go to a Government office, and certainly would not have got it done so quickly.

"Would you rather waste time or pay for a service and get the result quickly? A few years ago even share transfer forms were required to be attested by bankers. With shares in demat form this requirement does not exist. Why can't the telephone department come up with something like this to help their customers?" Hope the IT Minister pays attention to this point.

"Dear Swati, there is a tendency among people to believe that pensioners are the most suffering class," begins the missive from M. Radhakrishnan.

"Well, according to me, they are the most privileged class, enjoying monetary benefits, and, in the case of those who were employed in the Central Government, medical facilities through CGHS till the end of life.

"Nothing in this world comes for free and when a nominal charge is levied, people protest. Public sector banks maintain a lot of accounts with an average balance of less than Rs 500. Considering the minimum balance you have to maintain in private banks and other charges they levy, it would be harsh if one objected to any small fee levied by PSBs.

"As accountants we all know how companies find it hard to cope with increasing overheads. One of the reasons for PSBs performing poorly is that they provide many services free or at a low fee. Since we have been getting free service from government organisations in the past, we continue to expect that.

"However, we all know that it will be difficult to sustain any organisation with such freebies." The anti-free lobby in full force!

"Oh when you say free service, I remember how our car manufacturers misrepresent (to put it mildly) when they offer free service for one year or the first 10,000 km. Customers don't know that when they buy a car the value of free service is loaded in the price made to the car dealer. This can be proved through the transaction that when you give your car for service with a dealer other than the one from whom you purchased it, he will claim the amount from the one who sold you the car. Therefore, nothing comes for free, but if somebody says so, be assured that there is a hidden cost." I may need to explore how the two dealers account for the transaction.

C. V. Krishnamoorthy writes in from Kolkata: "Dear Swati, I was reminded of the following experience when I read your account of being charged by the bank for attesting your signature. In the 1980s, I had the occasion to close my SB A/c with the Indian Bank, Ashok Nagar branch, Chennai. I was surprised when I was charged, I think Rs 10, for closing the account.

"I argued with the Manager that I never came across such a rule in the passbook; he insisted that there was such a rule. I can understand a charge being levied for opening an A/c, as it involves issue of chequebook and so on, but levying a charge for closing the A/c was beyond logic.

"Another irrational act on the part of banks is charging commission for issuing DD or clearing outstation cheque, varying according to the face value of the instrument, when the resources employed by the bank for clearing a cheque of Rs 100 or Rs 10,000 are the same. It smacks of rank opportunism, at the cost of the customer, who happens to be on the wrong side of the counter." I'm sure the bankers among the readers are going to join the issue!

"Banks are doing business by selling certain services," reads a mail from Mutharasu of SBI. "In business, there is no such thing as a free lunch. Attesting signature is a service for which a bank employee has to spend time and, hence, it is charged. It has nothing to do with the capital adequacy ratios. Banks may never charge their clients for water taken from coolers, but the time spent in the air-conditioned offices with an officer should surely be charged." That frightens me!

"Your column made interesting reading," writes R. S. Prakash. "I could not make out the meaning of JIC."

That's Just In Case, Prakash, which you can use in SMS! "As regards service charges collected on attestation, I think nowadays banks are resorting to such things to take care of their reduced interest income. In this world nothing comes free and also has no value if offered free.

Banks are aware of the potential of offering such services for a fee. People do not hesitate to pay such sums if they result in less hassles," adds Prakash, and I'm sure he must be a banker!

*********

A few days ago, Giri, a friend of mine working for a bank called up and said, "Swati, would you like to visit a sick unit?" I said, "I'm no doctor, Giri!" He said, "Thought you may like to see how we lose money." And that got me interested. In the afternoon, therefore, I was driving with Giri to an industrial unit about 30 km from the city.

"Don't be shocked at what you'd be seeing," he warned, and I was expecting to see snakes and scorpions. But no, the sight was dismal.

The plant was in shambles. Giri said, "If I tell you the amount of debt we have to recover from this client, you'd faint!" I suggested, "Sell off the security, and recover your dues."

At that time, a couple of the company's employees were there and they pleaded that a revival of the plant would assure them of employment, and I could sense that the problem was getting knottier.

On the way back to the city, I studied the worksheet that Giri had, with projections for the next decade or so if his bank were to fund a revival.

A thought that struck me was if banks would be better off exiting the sick units than going ahead with revival experiments and pushing good money after bad.

I wondered what the success rate of such revival moves were. Send in your thoughts by Friday.

Swati_CA@hotmail.com

For archived episodes of this column click on: htpp://www.thehindubusinessline.com/nic/swati/index.htm

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