Friday, December 20, 2013

Oh Kolkata! - Episode No.16

While I could make plenty of value additions to my banking experiences under a stalwart like B R Nayak, I would like to mention only two specific instances that would give a fairly good idea about the way he handled the credit matter. I may be excused by my readers who are not so much interested in the intricacies involved in bank financing.

Palsons Drugs Pvt Ltd was a small-scale industrial (SSI) unit promoted by a Bengali gentleman affectionately called as Paul Babu. He was the Managing Partner of Annapurna Group of firms which enjoyed working capital limits at our branch. The group firms were distributors for several reputed fast moving consumer goods (FMCG) and pharmaceutical companies including Hindustan Lever, Amul, Rasna and others. Paul Babu had started the business with the assistance from our branch and his business had grown almost in tune with our branch business. Naturally he had a sentimental attachment to our branch and the bank.

Not satisfied with his profession as a distributor, Pal Babu set up the above new SSI unit with an ambition to become an industrialist. The unit was to manufacture pharmaceuticals and had already tied up with major drug companies for lifting its products. Our bank had sanctioned term loan and working capital facilities for the unit and the project was under final stages of implementation when I took charge. We made the final disbursement of term loan before the unit started trial production. The working capital limit was also made available by way of cash credit account shortly thereafter.

After some time later, the first monthly installment under the term loan fell due. I started following up the matter with Paul Babu. However, he could not arrange the payment and two more installments also fell due. We received a reminder from the advances section in the Circle Office. I discussed the matter with Paul Babu again and made the recovery of the installments from his cash credit account. I sent a reply to the letter from Circle office stating that we had recovered the entire dues.

Nayak had a system of going through the copies all the letters originating from our branch in the serial file maintained for the purpose. When he saw the copy of my letter, he called me to his cabin immediately. I thought he was appreciating my efforts in successfully recovering the dues. But he asked me whether I was right in making the recovery! I could not really make out what exactly he was trying to tell me. He then asked me whether there was any delay in the completion of the project. I told him that there was a delay of over six months.

Nayak then explained to me that the company was still not making cash profits and there was no justification for the bank to recover the installments at this stage. My telling him that Paul Babu had consented for the recovery did not cut ice with him. He was sure that Paul Babu must have diverted money from some other group firm to meet the dues, on my insistence. He advised me to get the installments rescheduled by obtaining a suitable proposal from Paul Babu. As per him, the bank had the moral obligation to be pragmatic and practical in such matters and the fact that the client was ignorant of his rights did not justify our action. I could appreciate his stand and accordingly I made a proposal to reschedule the installments and obtained the necessary sanction. That was my first lesson in the matter of monitoring the project implementation and recovery of term loans.

The second instance pertained to two sister firms owned by a rich Marwari family called Kanorias. The Kanoria family owned the oldest (wheat) flour mill in Kolkata – The Bengal Flour Mills, which enjoyed credit facilities with us. The dealings of this mill were highly satisfactory. The family had a partition and the old mill fell into the hands of one Ramanath Kanoria. One of the other Kanorias then purchased two sick flour mills standing in the name of Krishnanagar Flour Mills and Sree Radhakrishna Trading Corporation.

The owner of these two new mills then entrusted the management to his two young sons – Hemant and Sunil. While Hemant was a qualified young entrepreneur in his early twenties, Sunil had not yet completed his education. Both the firms enjoyed cash credit and inland letter of credit facilities from our branch. The mills were getting their supply of wheat from the Food Corporation of India (FCI). FCI would supply the wheat on credit on the security of letter of credit opened by our bank. The firms would take delivery of wheat from the FCI godowns against tendering of cheques drawn on our branch.

We used to receive a number of cheques drawn by these two firms in clearing daily. Most of the time there used to be a mismatch between the amount of cheques received and the amounts tendered by the firms for credit of their accounts. We were forced to allow overdrawings in the accounts on many occasions. Our Circle Office at Kolkata was not at all happy with the conduct of the two accounts. The firms had also failed to clear the temporary limits sanctioned earlier to meet some urgent requirements.

Hemant Kanoria was an extremely nice and thorough gentleman with impeccable manners. After I took charge I was surprised to see him at my house one morning with sweet boxes. While he tried to put it as a courtesy call, I could make out that he was requesting me not to dishonor his firms’ cheques.

On a particular day we received a strongly worded letter from Circle Office asking the branch not to allow any overdrawings in the two accounts under any circumstances. Unfortunately both Nayak and Guinn were not available at the branch at that time. Meanwhile, a number of cheques issued by the firms were presented in clearing. The firms failed to remit sufficient funds on the day to cover the payment. I was forced to dishonor the cheques as I did not like to disobey the instructions received from the Circle Office.

When Nayak came back to the branch in the evening, I informed him about the receipt of letter from the Circle Office. I also told him that I had returned the cheques of the two firms as the amount exceeded the limits sanctioned to them. When Nayak came to know that the cheques had been issued in favour of FCI, he was totally upset. Some of the cheques returned were for small amounts and that upset him more.

Nayak told me that FCI would definitely cancel the credit facility to the two firms once the dishonoured cheques received back. The firms would be forced thereafter to take delivery of wheat only against bank drafts. It was an impossible situation for them and the production at the units would suffer. It all boiled down to the units turning sick ultimately, which was not in the interest of the bank.

We managed to contact the FCI officials and got the cheques represented with great difficulty. Meanwhile, Nayak spoke to the DGM and took his permission to allow overdrawings in the two accounts. Our efforts enabled the two firms to retain their credit facility with FCI.  Over a period of time we could manage to get the two accounts regularized by sanction of need-based limits.

When I look back on the above incident, I feel I could not have taken a decision at my level to allow overdrawings in the accounts against the decision of the Circle Office. However, it remains a fact that Nayak had the capacity to take certain bold and pragmatic decisions in the interest of the bank and the clients as well. What was more – he was capable of obtaining the necessary approvals/permissions from the higher authorities as they had confidence over his decision taking capacity and integrity. This was quite in contrast with some other executives with whom I worked later. They were finding it difficult to take decisions even on simple matters owing to their risk-aversion nature!
------- (To be continued)
A V Krishnamurthy
Post Script:
One of the benefits of working as a Credit-Manager is the amount of satisfaction you derive in helping the genuine entrepreneurs. After writing down the above episode, I was curious to know the present position of the parties involved (after a gap of over 25 years) by going through the relevant websites. I was already aware that the brothers Hemant and Sunil had become successful entrepreneurs by floating the Srei Group in Kolkata. It is interesting to know that while Palsons is doing extremely well, the two Kanoria brothers have reached great heights in the industrial field of West Bengal. Here is their current position:

Palsons Drugs Pvt Ltd

Palsons Drugs traces its history back to 1984, when Mr. H. K. Paul the founder of the well renowned and diversified Palsons business group of Calcutta, India, entered the domain of manufacturing and marketing of pharmaceutical ethical formulations. As time progressed, this business grew steadily, and in 1993, Palsons Drugs focused their attention to Dermatological. With the increasing awareness amongst people about the health of their skin, the decision of choosing Dermatology, as the specialty to serve with focus and devotion, in the hindsight seems to be a strategic one. Over the years, Palsons Drugs expanded its operations to reach the entire product range to practically all major parts of India.

A young company willing to learn, improvise and go that extra mile, Palsons Drugs is among the first few upcoming pharmaceutical companies in India with national coverage and international standards. With the world-standard WHO-GMP certified manufacturing facilities, Quality is the way of life at Palsons. The ISO 9001:2000 certified company is also the first company from Eastern India to win the most prestigious and much coveted Quality Excellence Award from IDMA.

Srei Group

Srei is a Holistic Infrastructure Institution, constantly and consistently ideating to deliver innovative solutions in infrastructure space, thus playing a significant role in nation-building for over two decades, both in urban and rural India. Srei's businesses include Infrastructure Equipment Leasing & Finance, Infrastructure Project Finance, Advisory & Development, Insurance Broking, Venture Capital, Capital Market and Sahaj e -Village. Srei has a pan-India presence with a network of 73 offices and has also replicated its business model overseas with three offices in Russia. Srei is the first Indian infrastructure financing institution to get listed on the London Stock Exchange. Srei Equipment Finance Pvt. Ltd., a joint venture between Srei Infrastructure and BNP Paribas Leasing Solutions, a wholly owned subsidiary of BNP Paribas, is a Srei Group company engaged in Infrastructure Equipment Leasing and Financing Business.

Hemant Kanoria - Chairman & Managing Director
He has over 27 years of experience in industry, trade and financial services. He is the former President of the Calcutta Chamber of Commerce, past Chairman of the NBFI Task Force, FICCI and a member of the Steering Committee of TERI's Repository of Environmental Activities and Technology, former member of Board of Governors of Indian Institute of Management, Calcutta and Chairman, Infrastructure Committee, Confederation of Indian Industry (Eastern Region).

Sunil Kanoria - Vice Chairman
Chartered Accountant with more than 17 years of experience in the financial service industry. He is a governing body member of Construction Industry Development Council (CIDC), ASSOCHAM and among other responsibilities he has served as past President in Merchants' Chamber of Commerce, Federation of Indian Hire Purchase Association (FIHPA) and Hire Purchase & Lease Association (HPLA).
Dear AVK

The people of the ilk of Shri BRN are very rare to come by in the Banking Industry.   Such people are needed not only by Industrialists but also the people who work under them.  You are slowly revealing the secret of your success in the profession.


N. Narayanan

Reading these memoirs makes me feel that banking is an attractive career option, where one can have financial security, challenging roles that lead to personal growth, and also the satisfaction of really helping people build their lives. :o)


Dear AVK,
Very rarely we get such a type of persons like Shri BRN with pragmatic approach. It will be a pleasure to work under such people.


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