Friday, July 22, 2011

WHEN BANKS BECOME ROBBERS

No doubt the High Court of Allahabad – and even the Supreme Court a few weeks ago – has delivered justice for farmers in what is euphemistically called Noida Extension. Very briefly, the government had invoked a law dating back to the colonial era to de facto grab land belonging to farmers at throwaway prices in 'public interest'. Farmers were paid about Rs.800 per square meter for land; in turn, the Greater Noida Industrial Development Authority sold the land acquired for 'industrial units' to real estate developers at a minimum of Rs.10,000 per square meter. In turn, builders sold flats to middle class investors in search of a dream house at prices starting at Rs.25,000 per square meter. So the price paid by a middle-class home buyer was at least 30 times more than what the farmer was given. Clearly, this was bizarre and in defiance of common sense, apart from basic principles of justice. By declaring such land acquisition null and void, the courts have hopefully halted a nationwide trend where governments grabbed land from farmers to enrich builders and industrialists. Hopefully, this series of judgements will set a precedent and governments might be forced to stop indulging in the very worst kind of crony capitalism. This series of verdicts has already triggered another debate about the colonial era policy of land acquisition in India. A Bill to change the Land Acquisition Policy is waiting to be debated in the Parliament and the controversy will attract many comments and columns.

But I want to focus on the plight of the hapless middle-class investors and Shylock-like behaviour of commercial banks. The media is replete with callous statements from heads of banks saying that people who have taken loansto invest in these houses in Noida Extension have no choice but to keep paying the EMIs – even if they have no hope whatsoever of getting their dream houses. Some investors might be lucky to get a refund from builders because the Supreme Court has so directed (Can you imagine builders voluntarily refunding money?). But even they will have to forfeit the huge amounts of interest they have already paid to the banks. Quite simply, the banks are behaving like highway robbers and taking refuge under perverse agreements and fine prints. The fact is: the banks must have been aware that the projects were controversial and that there was litigation involved in the housing schemes. Knowing the risks, they merrily lent money to home buyers at exorbitant rates of interest. And now that the courts have stopped one part of the robbery, the banks continue to persist with their brand of loot.

Anyone saddled with credit card debt knows how banks in India behave as badly as evil moneylenders from old Bollywood movies. Everyone knows how banks send goons and thugs to people's houses and offices if there is a default on consumer loans. Everyone knows how banks behave in the most unethical manner by using glib salesmen to sell dubious financial products and hoodwink investors. All of us know that. And it is high time the banks were forced to change from being highway robbers to smart and profitable businesses.

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