A
credit default crisis involving loans worth over Rs 4,000 crore, backed by no guarantees and collaterals, has hit the
Kutchi-Visa-Oswal community, one of Mumbai’s most influential business communities.
On December 5, prominent members of the community – including Sunil Gala of the
Navneet Group and prominent builder Deepak Bheda – gathered at Dadar’s Kutchi Hall to discuss the crisis that has affected some of the smaller lenders to such an extent that they are struggling to meet their day-to-day expenses.
The community is now considering keeping some of the bigger borrowers out of community events, including weddings, and throwing them out of temple trusts. What has hurt the lenders most is that some of the borrowers, while defaulting on loans, continue to live flashy lives.
The closely-knit Kutchi-Visa-Oswal community has a decades-old network of brokers who link people with money to lend with those looking for capital for their businesses. The brokers offer 12 to 15 per cent interest which is way higher than what banks offers.
These loans, however, are not backed by any formal documentation and all that the lenders have to show for the money they have loaned out are vouchers signed by the brokers and the borrowers. The borrowers pay brokers an annual brokerage of 1to 2 per cent of the sum borrowed.
While this system has worked well for several decades with elders stepping in every time there was a default, the size of the current crisis has spread panic in the community. Since brokers also accepted sums as small as Rs 25 lakh to Rs 50 lakh from lenders, the default crisis has hit families who ran their households on
interest income from these loans especially hard. Some of those affected are finding it difficult to pay their
medical bills and children’s school and college fees.
The December 5 meeting, attended by over a thousand community members, ended with the formation of
Kutchi Sahayaru Abhiyan, which loosely translates to Kutchis Support Mission in English. The mission will look at various ways to resolve the credit default crisis.
Community members met on Dec 5
According to rough estimates, there are between 16 and 20 big
defaulters each owing over Rs 200 crore to community members. The
defaulters include the owner of a food stores chain, a distributor of
pulses, a top optician, a lottery operator and a papad manufacturer with
a national presence. Some of the brokers also appear in the defaulters
list because they accepted money from lenders, but instead of offering
it as loans they themselves used it, mostly in the real estate market.
Prominent importer-exporter Harshad Contractor, who was invited to address the December 5 meeting, said the community is seeking legal opinion in the matter.
However, a senior community member, who did not wish to be identified, said that since a bulk of the money lent was in cash, legal recourse would be difficult. “This crisis will have to be resolved at the community level. There have been defaults in the past, but it was never this bad. The entire community has been impacted by this crisis,” he said.
All those who have lost money have now been asked to fill out a form with all relevant details like the amount, broker’s name, and who the end borrower was. Community elders have now begun reaching out to the borrowers asking them to settle the dues.
Another factor that contributed to the crisis was that in many cases brokers charged interest rates as high as 25 to 30 per cent per annum, trapping the borrowers in a debt trap.
Navneet Group boss Sunil Gala said this is also an opportunity for the community to introspect. “People must do their own due diligence while lending money instead of depending on brokers. Small lenders must also look for safer investment avenues,” he said.
Prominent builder Deepak Bheda, who is a member of the Kutchi Support Mission, said the crisis is symptomatic of the falling moral standards. “The community once was known for its Vat-Vachan-Vyavahar. Now we have come together to put pressure on defaulters to pay back,” he said.
credit default crisis involving loans worth over Rs 4,000 crore, backed by no guarantees and collaterals, has hit the
Kutchi-Visa-Oswal community, one of Mumbai’s most influential business communities.
On December 5, prominent members of the community – including Sunil Gala of the
Navneet Group and prominent builder Deepak Bheda – gathered at Dadar’s Kutchi Hall to discuss the crisis that has affected some of the smaller lenders to such an extent that they are struggling to meet their day-to-day expenses.
The community is now considering keeping some of the bigger borrowers out of community events, including weddings, and throwing them out of temple trusts. What has hurt the lenders most is that some of the borrowers, while defaulting on loans, continue to live flashy lives.
The closely-knit Kutchi-Visa-Oswal community has a decades-old network of brokers who link people with money to lend with those looking for capital for their businesses. The brokers offer 12 to 15 per cent interest which is way higher than what banks offers.
These loans, however, are not backed by any formal documentation and all that the lenders have to show for the money they have loaned out are vouchers signed by the brokers and the borrowers. The borrowers pay brokers an annual brokerage of 1to 2 per cent of the sum borrowed.
While this system has worked well for several decades with elders stepping in every time there was a default, the size of the current crisis has spread panic in the community. Since brokers also accepted sums as small as Rs 25 lakh to Rs 50 lakh from lenders, the default crisis has hit families who ran their households on
interest income from these loans especially hard. Some of those affected are finding it difficult to pay their
medical bills and children’s school and college fees.
The December 5 meeting, attended by over a thousand community members, ended with the formation of
Kutchi Sahayaru Abhiyan, which loosely translates to Kutchis Support Mission in English. The mission will look at various ways to resolve the credit default crisis.
Community members met on Dec 5
Prominent importer-exporter Harshad Contractor, who was invited to address the December 5 meeting, said the community is seeking legal opinion in the matter.
However, a senior community member, who did not wish to be identified, said that since a bulk of the money lent was in cash, legal recourse would be difficult. “This crisis will have to be resolved at the community level. There have been defaults in the past, but it was never this bad. The entire community has been impacted by this crisis,” he said.
All those who have lost money have now been asked to fill out a form with all relevant details like the amount, broker’s name, and who the end borrower was. Community elders have now begun reaching out to the borrowers asking them to settle the dues.
Another factor that contributed to the crisis was that in many cases brokers charged interest rates as high as 25 to 30 per cent per annum, trapping the borrowers in a debt trap.
Navneet Group boss Sunil Gala said this is also an opportunity for the community to introspect. “People must do their own due diligence while lending money instead of depending on brokers. Small lenders must also look for safer investment avenues,” he said.
Prominent builder Deepak Bheda, who is a member of the Kutchi Support Mission, said the crisis is symptomatic of the falling moral standards. “The community once was known for its Vat-Vachan-Vyavahar. Now we have come together to put pressure on defaulters to pay back,” he said.
A credit default crisis involving loans worth over Rs 4,000
Read more at:
https://mumbaimirror.indiatimes.com/mumbai/cover-story/rs-4000-cr-credit-default-crisis-hits-kutchi-visa-oswal-community-in-city/articleshow/67068452.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
https://mumbaimirror.indiatimes.com/mumbai/cover-story/rs-4000-cr-credit-default-crisis-hits-kutchi-visa-oswal-community-in-city/articleshow/67068452.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
No comments:
Post a Comment