Indian borrowers defaulted on around 35 billion dirhams in loans between 2015 and 2019 and fled the country.
Image Credit: Ahmed Ramzan / Gulf News Archive
Dubai: Indian borrowers defaulted on around 35 billion dirhams in loans between 2015 and 2019 and fled the country.
Although the banks have failed to collect most of them, a few borrowers contacted by Gulf News said the chances of paying back in full are low because they simply do not have the resources.
Abraham Thomas (name changed), a businessman who owned two steel manufacturing units, a commercial vehicle body shop and who completed projects for large construction companies across the United Arab Emirates omitted his loan obligations and fled the country in 2018.
Thomas’ story is typical of many borrowers who chose to flee.
“A lot of great entrepreneurs didn’t pay me on time. I bought inventory and handled payroll with borrowed money. When the payment cycle broke, the banks started calling me. To keep the business going and to pay off some of the bank loan installments I have borrowed from pawn shops. Eventually I had to run away from my borrowers, ”Thomas said.
Money lenders have their network in India to get their money back through coercion tactics. Thomas was forced to sell most of his family assets to settle their debts. Banks, on the other hand, are limited to legal channels to claim their money.
Legal channels for prosecuting defaulters in India are time consuming and expensive. The COVID epidemic since March 2020 has slowed the efforts of banks to prosecute delinquent debtors.
In early 2020, India and the UAE agreed to make the UAE courts’ verdicts on enforceable defaults in India, making life difficult for Indians who defaulted on their loans and fled. the country.
As a result of the change in the legal status of these cases, many banks in the UAE had hired law firms to initiate proceedings in India in order to recover their money. Bankers and law firms now say nothing has advanced much due to the COVID outbreak in India and the United Arab Emirates from March 2020.
“Hiring a law firm in India is expensive. Especially when you know the process is going to be long and if the defaulter can prove they are bankrupt, the chances of recovery are low. After the COVID epidemic, many banks are reassessing their loan collection strategy, ”said the head of SMEs. [small and medium enterprises] business in a local bank.
Scope of the India-UAE Judicial Cooperation Treaty
In order to facilitate mutual legal assistance in civil and commercial matters, India and the United Arab Emirates concluded on October 25 an “Agreement on judicial and judicial co-operation in civil and commercial matters for the service of summons, documents courts, commissions, enforcement of judgments and arbitral awards. , 1999 (the “Treaty”).
Although the treaty was ratified in 2000 and the United Arab Emirates gave effect to the treaty by publishing it in its Federal Gazette in the same year, India had only completed national formalities regarding certain provisions of the treaty at the beginning. from 2020.
As a result, successful parties in UAE legal proceedings were unable to benefit from the treaty and often struggled to enforce judgments in India. India issued a notification on January 17, 2020 declaring the UAE as a “Reciprocating Territory”. The 2020 Declaration means that it should now be much simpler and faster to enforce judgments from UAE courts in India.
The Chamber of Judges K. Vinod Chandran and Judge VG Arun observed that if the non-repayment by the borrower constitutes a criminal offense in a foreign country, the bank could take criminal action against the borrower by the diplomatic channel.
The court made the observations while it had a motion for a brief filed by a woman from Kollam, Kerala, who had returned after working as a nurse in Saudi Arabia against attempts by bank debt collector Al -Rajhi, in Saudi Arabia, to intimidate her and force her to pay the overdue amount.
Why the default values?
Some bankers blame reckless borrowing and the use of funds for purposes other than business as the root cause of the current crisis.
“We have seen cases where some of these business owners embezzled funds to acquire luxury homes and cars and when the payment cycle broke they ran out of cash to repay loans and operating expenses, ”said the CEO of a mid-sized UAE bank that has a substantial portfolio of bad loans to SMEs.
Defaulting borrowers have a slightly different story to tell.
“It is not fair to categorize all defaulting debtors as reckless. I serviced all my loans until the second half of 2017. Late payments led to defaults and banks shut down lines of credit. It’s not that I used the loans that were used to finance luxury consumption. On the contrary, I had a huge stock of auto parts, two workshops and 70 employees when I left the country, ”said T Rajendran, a Sharjah-based businessman.
Much of the delinquency on loans was due to the sudden disruption of the payment cycle in the economy. After a drastic drop in oil prices from 2013, a combination of budget adjustments ranging from the rationalization of spending by state-linked entities and large corporations resulted in delays in payments to SMEs. This resulted in the first stage of defaults by a number of SMEs.
“I have spent almost 30 years in the United Arab Emirates working and leading various companies. I’m not happy with what happened to me. But unfortunately there is no way to drive out those who owe me money and pay back those I owe, ”said Rajendran, who now lives in a modest apartment in Kochi, central Kerala.
In the absence of viable insolvency proceedings, business owners facing lawsuits and potential criminal charges from lenders have chosen to take the plunge and return to their home countries.
Defaults have had a domino effect on the credit quality of banks, with business failures and job losses adding to the overall volume of nonperforming loans (NPLs).
After that ?
Bankers insist they will continue to pursue defaulters, especially the big ones.
“We have engaged law firms in India to assess the possibility of redress in the event of a material default. We will act on their advice, ”said the head of the legal department of a local bank.
Many borrowers claim that some law firms and credit collectors have complicated the problem in the early stages of default.
“I had facilities and machinery worth over 8 million dirhams and a viable business if not for the lack of cash. All my attempts to sell the business and repay a substantial portion of the loan were scuttled by bank collectors, ”Thomas said.
Watch out for intermediaries
Many small borrowers (who have obligations of less than Dh250,000) also claim that debt collectors and middlemen are trying to put a kill on the possibility of settling outstanding loans from banks.
“I had a total obligation of 170,000 Dh in credit card debt and a personal loan when I lost my job and had to leave the country. I had planned to organize funds from home. by selling my house and paying off the bank. COVID delayed the Now I see my debt exceeds 250,000 in accumulated interest and fines, “Abdulla Kunhi, a former bank employee.
Kunhi said he hired an agent in Kochi to discuss a workable settlement with the banks. Although the agent claimed to have contacts in the United Arab Emirates, nothing has materialized yet and in the meantime the agent has collected nearly 4000 Dh in fees.
Many small borrowers like Kunhi wish to settle their loans and pursue a career or business in the UAE. But unfortunately many say that in India there is no transparent way to deal directly with banks.
Limited options
In the case of the use of loan collectors, banks face great resistance from law enforcement agencies and local courts. The use of debt collectors has become illegal following a court ruling. In 2019, a division chamber of the High Court of Kerala ruled that foreign banks or financial institutions cannot hire debt collectors to realize the overdue loan amount of a borrower in the country.
“The cost of collecting the loan will be a major consideration before taking legal action against any defaulters. When hiring our lawyers, we will look at the cost per case and decide on the viability of each case in terms of loan recovery, ”said the head of legal at a local bank.
The average legal cost of each court case in India could run between 100,000 and 150,000 Dh. Thus, if the amount to be recovered is lower, there will be less incentive to prosecute such cases. Although the priority for banks is to tackle large business owners and small and medium-sized enterprises (SMEs) who have defaulted on their loans, banks hiring law firms in India, small defaulters on loans to individuals could also face the heat in the near future.
