Letter To The Governor, Reserve Bank of India

The Governor
Reserve Bank of India

Mumbai.
Subject:
A) Request to ANNULL the scrutiny note of the inspections conducted at Federal Bank
Ltd, Erode branch on 13th and 14th October 2003 and the Head Office following
complaints from Whitefield Cottons Private Limited, on record at the Reserve Bank
of India, disclosed to us recently as per request made under the Right to Information
Act; to annul any other scrutiny notes not disclosed to us so far;
B) request to RETRACT the unverified, misleading narration and erroneous remarks
placed on record by the scrutiny note(s) , which might also have been communicated
verbatim or rephrased in any communication that the Reserve Bank of India might
have sent to the Ministry of Finance and other higher organs of the Government of
India including the Office of the President of India, as inferred from explicit
references to our communication to the President of India placed both at the
beginning and end of the Scruntiy Note.
C) Request for a FAIR SOLUTION to the problem in the face of persistent attempts by
the bank to aggressively evade and cover up the original issues, encouraged by the
slipshod scrutiny and the absence of timely judicial redress.
References:
a) Our complaint against Federal bank Limited and the various follow up email messages
and letters to various departments of the RBI on various dates - Our complaints to
the RBI on March 1, 2002, our complaint with the Banking Ombudsman filed on
August 28,2002, our email dated August 31, 2003.
b) Letter from the Powerloom Development Export Promotion Council (PDEXCIL)
dated August 16,2004 and other communication from Pdexcil on various dates.
c) Any available record that RBI might have on our meeting with Mrs. Makhija, Chief
General Manager, at her office at Mumbai 29th March 2004.
d) Letter by RBI IECD No 4329 dated 04.02.03 / 2003-2004 dated March 25,2004 which
hastily closed the complaint without a fair scrutiny
e) Our letter dated 27 November 2004 addressed to Smt Usha Thorat, sent by Speed
Post ( No EE 42032410 3IN ) with copies to PDEXCIL on the inaccurate, unverified
comments by RBI vide its letter dated 04.02.03 based on choice papers made
selectively made available by the Bank during an “Inspection”.
f) our application to RBI under the Right to Information Act and the Information
furnished by the RBI vide DAPM CO RIA / 07.05.0-1 / 2006-2007 dated April 10,
2007 under the Right to Information Act
g) The scrutiny report released as part of papers released vide DAPM CO RIA /
07.05.0-1 / 2006-2007 dated April 10, 2007 under the Right to Information Act
Sir,
This is a request to the Governor to examine and annull the erroneous and damagingly
misleading RBI scrutiny note(s) pertaining to our complaint against Federal bank
Limited filed during March 2002, filed with the RBI with a vivid chronology on the major
problems dating back to the year 1996. This complaint on our repeated representation
was examined with a slipshod “scrutiny” which placed on internal record “scrutiny
notes”, hitherto remained classified and undisclosed, doing us plenty of harm. These
are records that are completely misleading to deter the top executives of
RBI and the Ministry of Finance to whom the complaint had been addressed /
copied, from paying due attention to the problem.
The scrutiny note(s) pertain to inspections conducted at Federal Bank Limited on 13 &
14 October, 2003 as directed by the General Manager (Department of Banking
Supervision), but these scrutiny notes were not disclosed to us, nor were their
existence known as the cause for perceived inaction by the higher executives of RBI and
the Ministry of Finance. The existence of the scrutiny note(s) were known to us after
we filed a query under the Rights to Information Act (2005) and one of these classified
scrutiny note(s) was disclosed to us on April 10, 2007.
The background summary of the company and the terminal banking limits :
➔ Company: Whitefield Cottons P Limited, Erode, Tamilnadu, India.
➔ Name of the Bank: Federal Bank Limited, Erode, Tamilnadu Branch
➔ Commencement of Banking Transactions: March 1996
➔ Terminal Credit Limits: Rs 80 lakhs pre-shipment export packing credit (PCL)
and Rs 105 lakhs of post-shipment Bills Purchase (FUBP)
➔ Liabilities claimed outstanding: 80 lakhs (US $ 190,000 approx) of principal,
(unsubstantiated, NO clear, legible accounts from the bank, which has been
dodging for the last 64 months, repeated, written requests for a comprehensive
statement of accounts made at various levels of the Bank Management and
through court) plus exaggerated interest.
➔ Security: Collateral of actual value in excess of Rs 150 lakhs (US $ 375000
approx.) + personal guarantees by the Directors + Guarantee by a a family
member who is harassed by the bank with misinformation, who in turn forces
the Directors to rush for an unfair settlement with the bank.
➔ Performance of the Company: 98% of the company’s revenues in export
earnings; over US $ 1.5 million in production exports in the first 4 years, in the
absence of production infrastructure, an average credit limit of $ 100,000,
procedural hurdles and several other limitations.
Our banking transaction record was clean, the facilies we had were covered by ample and valid
collateral securities and guarantees, 95% of our exports were against irrevocable letters of
credit from a first class international bank, all realized without any problem, all proceeds
routed through the bank direct from the Overseas Customer's bank, The Bank of Montreal.
General Background:
Our company had a very good start during June 1996 with a direct export order from a
midsize Canadian company, against an irrevocable letter of credit from a first class bank.
We went to Federal Bank that gave us 15 lakhs (US $ 35,000 approx) ad hoc against
guarantees and collateral. We made an estimate of our requirements, asked for 75 lakhs
(US $ 175,000 approx.).
Over the next two and a half years, the bank confirmed the ad hoc limit of Rs 15 lakhs
to a permanent limit of 15 lakhs, then 20 lakhs, then 25 lakhs, then 38 lakhs ad hoc, 45
lakhs permanent, 60 lakhs, 75 lakhs and after two and a half years it met our
requirement of two and a half years ago with a final sanction of Rs 80 lakhs. Our export
performance during this period increased from US $ 106,6000 to US $ 473,475, a four
fold increase in 3 years, while our needs multiplied several fold and the funds made
available were too little, timed available too late.
During these three years ( 1998-2001) we were met with several procedural hurdles
and two bad, very bad branch managements that included two officers charge sheeted
or internally investigated, suspended / demoted and reprimanded for blatantly corrupt
practices and for frauds that compromised on the integrity of the customers' accounts.
(We are in business and it is not our business to raise complaints or reform every
organization we ineract with, but this reference to these two officers is inevitable at this
stage, without which a complete picture does not emerge at all. All our communication
to the bank's Chairman and to RBI since 2002 has been gentle on this detail, except
perhaps a hint at “administrative irregularities” and even now it is toned down on
details. )
The banking problems further intensified due to various reasons in general and due to a
vindictiveness to react to communication to higher officials within the bank, RBI and the
ministries in particular, to cause a complete reversal of our progress and collapse our
company from the year 2000-01 onwards.
Our export performance and the overall growth ought to have been far more than
what is shown as achieved above, if the bank had been professional and if the branch
administration was clean in its assessment and service and had resolved problems.
Banking Problems:
✗ The bank refused to consider a promising proposal in 1996 and again two years
later, for a foreign currency term loan for creating manufacturing facilities on the
grounds that its exposure to foreign currency risks were limited.
✗ The bank at the same time, blocked us from utilizing a term loan of Rs.1.5 corers
sanctioned by the State Industries Promotion Corporation of Tamilnadu Limited.
Later we had problems getting IDBI, Coimbatore on a TUF proposal.
✗ The bank took over 180 days to partially concede to our requirement as PCL of
Rs.75 lakhs.
✗ The bank took 700 days to sanction our requirement in full, by which time the
sanction was too little too late.
✗ The bank prevented us from moving to any other bank which could have more
responsive. Our company is based in Erode, a small town, where such restrictive
measures were locally possible. On record it prevented South Indian Bank Erode
from granting us the required facilities and it is informally known to us that State
Bank of India, whose DGM or the highest official at Erode on his own initiative
offered 1.6 crores of PCL but retracted on his offer the very next day and on
insistence during a meeting to ask him why, strongly hinted that the opinion
(with no basis for an adverse opinion on this performing, blemishless account at
that point of time) from Federal bank was prohibitive. We had also approached a
few banks who have have all been restrained by informal adverse opinions from
the bank.
✗ The bank hurt a major export order for US $ 803,750 dated November 5, 1999
placed by our regular overseas customer who had established a buying record of
over $ 1.2 million with us until then, well known to the bank, in spite of our
repeated request for assessment of this highly time sensitive situation. At that
point of time our limits were (Rs 60 lakhs of PCL and about 90 lakhs of FUBP
enhanced after months to) Rs 80 lakhs of Packing Credit and Rs 105 lakhs in
FUBP limits. The Packing Credit was fully utilized while all the bills purchased by
the bank had realized (so FUBP limit was fully available with zero outstanding),
but the bank did not allow us the flexibility as accorded by commercial banks in
general to partly / fully utilize the untilized portion of post shipment (FUBP)
limits usable for pre-shipment (Packing credit) needs. Nor did the bank allow us
even the marginal flexibility of exceeding the sanctioned and kept our account
"frozen" rigidly at Rs 80 lakhs, which by itself included auto interest debits to top
up the “utilized” potion to the limit of 80 lakhs, and did not allow us to exceed
the sanctioned Packing Credit limit even by a fraction. With this impossible
situation the export order of US $ 803, 750 could only be partially executed,
that too with market borrowings forced upon us by the situation, which was also
not sufficient, so the production was delayed, quantities ordered were reduced
and finally the order was largely cancelled. These “interim” solutions of
prohibitively expensive market credits perpetuated because the bank would not
act upon our request for an assessment. Due to all these problems, our
progress began to reverse, and our company's finances were severely damaged.
The bank watched us degenerate and collapse without even acknowledging that
its Erode Branch has hurt a customer so badly.
✗ The bank has done more serious damage by keeping our account frozen at Rs 80
lakhs, due to this refusal our business came to a standstill during the last four
years with prosperous opportunities for growth and profit foregone and the
losses increasing.
✗ The bank blindly refused to evaluate our requirements, problems and prospects
in spite of various repeated requests for a comprehensive understanding of our
problems and prospects.
✗ During the last seven years the bank has been completely silent on its role,
refuses to acknowledge any communication from us to its Chairman or other
officials, sent by email, repeated by registered post, repeated and repeatedly sent
again and again.
✗ The bank has not provided us with a comprehensive statement of our

transactions after repeated requests from us. The need for a comprehensive
statement of accounts is significant in the light of all the branch level
administrative irregularities and fraud that happened at the Branch that
compromised on the integrity of the accounts at the Branch. The bank's
accounting system at the branch was very vague, it accounting format was
confused and the bank is very reluctant to furnish us with a comprehensive
statement of accounts. [ Even at the DRT the bank has been evasive on our
repeated petitions for a statement of account for over 48 months, enabled by
the coincidental absence of a Presiding Officer at the DRT Coimbatore for
nearly or over a year and by another coincidental jurisdictional transfer –
retransfer of a group of accounts away from DRT Coimbatore to Madurai which
took another 9 months]
✗ During the first three years of operation the procedural hurdles and delays at
this bank limited our growth prospects in terms of establishing manufacturing
facilities and accepting larger export orders. During the next three years
whatever little progress that was made during the first three years was reversed,
which caused considerable erosion of our inventories and other resources which
left us crippled.
✗ There were various ways by which we were affected. Our work in process of
that time was rendered unusable midway due to the situation forced upon us by
the bank's total disregard for our needs and the way it kept our account frozen.
There were various other practical business factors that come into play when
flow of resources were blocked. For instance alternative market borrowings that
were forced upon us by the situation was prohibitively expensive. The quality of
materials purchased with contingent market credit could not be assured. Time
delays were expensive with a multiplier effect. One major problem led to a
multiplicity of problems and the losses multiplied, our various resources decayed
during the last seven years and the combined effect is such that it absorbed the
money invested in stocks and work in progress, in eroded value.
In summary, the bank was completely unwilling to allow us to move to any

other bank that had a good understanding of our clean transaction record
and prospects (until there was an interventionist opinion from Federal Bank, known and
unknown, on and off record), nor did the bank allow us to create the
manufacturing facilities required, with Term Loan assistance from
supportive term lending institutions while on its own being irresponsive on
our requirements.
Present Status:
Imposed NPA status: Bank's strategy of offense as the best form of defense.
The company's account remains classified as an NPA for the last 5 years. The company
approached several banks, term lending institutions and venture capitalists for textiles
and for well conceived new enterprises. Invariably, all banks and venture capitalists are
uncomfortable with the NPA status and the history of the company's representations to
various levels of management at the bank as also to the RBI and the Ministries.
A case filed by the bank at the DRT is slipshod in description and unsubstantiated as
it contains no details of how the liability was arrived at. A petition filed at the
DRT for a comprehensive statement of accounts is very very slowly progressing with
the Presiding Officer not posted in DRT Coimbatore during a 2 year period, dismissed
once without our knowledge, dismissed again after a year, taken to DRAT, won the
appeal with a directive to readmit the petition at Coimbatore and when filed again, all
cases at DRT Coimbatore were moved to DRT Madurai. As on April 9, 2007 the
DRAT's some what favorable order has not been taken up by the DRT, because of the
delays in the jurisdictional realignments within DRT.
The petition, after all the delays, came up for hearing for restoration on September 5,
2007 and is being heard. At the DRT the hearing on our petition stands postponed by
the Presiding Officer to Nov. 31, 2007. But as a final attempt to evade this petition for a
comprehensive, complete statement of accounts, the bank has initiated proceedings
under the Securitization and Reconstruction of Financial Assets Act, with an even more
exaggerated claim that has no substance.
The NPA status that was accorded on the company without due scrutiny of the bank's
role in causing it, cripples the company, keeps the company from seeking funds from any
bank, financial institution or private equity firm, which in normal circumstances would
have built up this company into a very valuable, high growth company. The Directors
shaped up new ventures that remained unbankable due to the NPA status of this
company.
In response to our complaints and to cover up its deficiencies the bank is persistently
pointing to the NPA status that it brought about, as its defense and in the process has
already caused our company which had a track record of over $ 1.5 million to collapse.
Instead of responding to the situation caused by these banking problems, or responding

with legible statement of accounts to establish the integrity of its accounts, the bank
chooses to take recourse to the Guarnators to cause us improper pressure.
Inconclusive closure of the complaint to RBI
Updates and follow up on the complaint for action failed to elicit the due and fair
response by RBI, so I met with the Chief General Manager Mrs. Makhija at her office on
29th March 2004 as recalled, by which time our operations were completely crippled.
(The reference to Mrs. Makhija's name in this letter may not please be misconstrued as
a complaint, Mrs. Makhija has been receptive at the meeting which was granted at short
notice during my visit to Mumbai, and she has brought in her team to clarify RBI's
position on the complaint, which is what is disagreed here)
The summary of her response was that, Yes, we acted on your complaint, we did an
inspection on the bank, not once but twice but did not find any records to
support your complaint. What else?
When it was pointed out during the meeting that records available with us were not
called for and that the bank must have made available records selectively, and talked
about the bank's refusal even to furnish a comprehensive statement of accounts, and
about the administrative irregularities that compromised on the integrity of the
accounts, Mrs. Makhija said “Beyond this, RBI is helpless”
The contents of the inspection report, if any was filed at that time by the team that
inspected the bank, was not disclosed to us, but a letter was sent to us AFTER THE
MEETING With Mrs. Makhija with inaccurate observations declaring the file closed.
RBI IECD No 4329 / 04.02.03 / 2003-2004 dated March 25, 2004 declared the file
closed after making inaccurate, unverified comments based on its inspection of whatever
papers that the bank would have made selectively available for RBI inspection. The bank
was conveniently allowed to comfortably defend its case with choice papers from its file,
we were never contacted by RBI, our papers were not called for, there was not even a
phone call from RBI to us to verify the bank's version placed on record by RBI which
culminated in this letter that said the case was closed.
We approached Pdexcil with this problem and Pdexcil followed up on this. We sent a
letter to RBI on this on 27 Nov. 2004 with clear, point by point response to the letter
pointing out that all that the RBI had done so far was to protect the bank. Our
letter was clear in its communication, summarized here as : 1) There was no diversion
of funds 2) Inventory position was as per norms BEFORE the bank froze our account
and inventory position was never an issue 3)The bank is refusing to furnish a
comprehensive statement of accounts in spite of several requests since July 7, 2002 4)
RBI has not made any note of anything about the management scandals at this corrupt
branch and about how it affected our account, nor has the RBI made any observations
about the bank having blocked other banks from taking over our account. 5) The bank's
ad hoc limits were so called ad hoc, but followed rigid documentation procedures and
took months to be sanctioned 6) The inspection done at the branch was one sided.
There was no inspection of our records 7) There are no directives to the bank to give
us a way out of this unfair situation.
It was also stated in the letter that “The bank was comfortably allowed to
misrepresent facts and the bank's erroneous version of what it did to us
some how found its way to RBI's records, enough for RBI to send out a letter
of inaccurate observations.”
We requested thorough scrutiny and a solution. We sought interim solutions to enable

us to avail the Technology Upgradation Fund for modernization and pay attention to
our case in detail and offer us a banking solution to our company.
We also requested RBI to look into unfair provisions such as DRT's counter claim
procedures that overly protect banks and keep affected companies defenseless.
The letter sent to RBI on 27 Nov. 2004 is reproduced as part of the annexures to this
letter. The letter was sent direct and through PDEXCIL, which followed up on this
repeatedly. RBI intransigently refused to take note and maintained that the its
earlier letter closed the file.
The contents of our letter dated 27 Nov 2004 were probably not placed on record but
papers such as the scrutiny notes were placed on record undisclosed until the Right to
Information Act was invoked during April 2007.
The erroneous RBI's Scrutiny Note as recently disclosed to us:
The scrutiny note was disclosed to us by RBI vide its letter DAPM.CO.RIA.6674/
07.05.01 / 2006-07 dated April 10 2007 Ref No RIA 1437/2006-2007.
Please annul this scrutiny report which is highly erroneous and is designed to mislead
and deter the Governor of RBI and the Minister for Finance from paying due attention
to the complaint
The scrutiny report may please be examined for inaccuracies a) as against the facts
pointed out in our letter sent to Smt Usha Thorat and to you as the Governor on 27 th
November 2004, which RBI refused to take note and b) as against this communication
to explain the gross bias noticed in the Scrutiny Report made available to us recently.
The inaccuracies of the Inspection Report are as follows:
1. The scrutiny report is a paperwork with misleading bits and pieces of our own
communication to quote out of context in a chronological jugglery to plead
the bank innocent. The major issue dates back at least to our letter to the Senior
Manager dated 26th November 1999 to the Branch Manager to help us handle an
export order dated Nov. 5, 1999 that we had on hand amounting to textiles of value
US $ 803,750 to be shipped by July 15, 2000. It was a time sensitive need, it was so
clearly conveyed to the bank and the bank wilfully watched the time lapse. Even with
prohibitively expensive market credit we were unable to handle the requirement so
this stained our relationship with our overseas customer, whose unhappy
communication from a message sent 18 months later was misleadingly cited by the
scrutiny report “If orders are to be placed with Whitefield, if you give a date of
delivery and accept the dates of deliveries then the agreed dates have to be
respected... “. (How did the bank obtain this email message?) This was from the same
customer who has place over 50 orders with us of value in the realm of US $ 1.5
million, received every shipment ordered and wanted to scale up a few fold with us.
The strain in relationship as conveyed by this exceptional, latter-day communication
was caused by the time delays originating in the banking problem that we have
complained to RBI about.
2. The scrutiny report, by overall design, confuses the cause with the result.
Since 1996 we were facing various procedural hurdles and limitations. Started with a
15 lakh ( US $ 35000) adhoc limit confirmed after months into 15 lakhs reusable
limit, extended after months to 25 lakhs, we have been seeking suitable credit limits,
most notably a PCL requirement request for Rs 75 lakhs submitted on 22/09/1998.
The bank by its sanction dated 30/3/99 sanctioned Rs.60 lakhs, which by itself was not a
clear useable limit. It further took disbursal delays. It was only on 23/08/2000 that the
bank sanctioned limits as requested at Rs.80 lakhs (by which time we had received a
series of time-sensitive orders totaling Rs 3.43 crores, which pushed our requirements
to as much as Rs.160 lakhs of Packing Credit). The bank effectively took approximately
700 days to respond to our requirement by which time we had lost several orders for
want of funds, lost our reputation for timely execution of order accepted, incurred
higher cost of production, incurred overheads non- productively and had our growth
prospects badly hurt. Enough and more damage was done to our finances by all the
time delays. Time delays by the bank in processing our requirements was the primary
reason why our shipments were delayed, and led to a slowdown in performance. Such
banking problems collapsed the time sensitive and valuable export order of US
$823,000 (INR 32.3 million). Requests for an appraisal of credit needs remained
unresolved for over 18 months CAUSING difficulties in fulfilling the commitments
and CAUSING the cancellation of orders. After all the damage done by the wilfully
desructive attitude of the branch and regional office, the issue was escalated to the
Bank's Chairman on December 10, 2001. The letter to the chairman instead sparked
off an almost instant reaction in the form of a recall notice from the bank three days
later. We were locally assured that the recall notice was a routine communication,
we believed it and continued waiting for another 6 months for a response from the
Bank's Chairman to our letter (sent and repeated several times by email and
registered post). After this initial communication and and all further communication
to the Chairman on various dates were wilfully ignored, we preferred a complaint to
the Reserve Bank of India on March 1, 2002 with a copy addressed to the Union
Finance Minister about how Federal Bank Limited was hurting our expert prospects
and reversing our progress. This was followed by a complaint to the Banking
Ombudsman during August 2002 which was followed by several letters to RBI and to
the Finance Ministry. The bank continued to remain silent and started destructively
reacting, secure in its contention that the account is classified NPA. The Inspection
report cites a misleading chronology to present a picture of a complaint in response
to a recall notice whereas in reality the recall notice shot at us 3 days after we sent
the letter to Chairman was in fact the bank's arrogant assertion that a borrower dare
not complain. The report concludes as it began with the intent, “there was no
ground to believe that the bank had retarded the growth prospects of the
borrower”. The bank not only retarded the growth, but also reversed all
progress made during the first four years, brought the operations to a
standstill and caused a complete collapse.
3. The scrutiny report again confuses the chronology and quotes us out of context to
reach an outrageous conclusion that “it may be surmised from the above that the
delay was not on the part of the bank, but on the part of the borrower”. That is a
brilliantly skewed logic totally contrary to truth, but there is plenty of scope for
more easily arguable trivial distortions if an RBI scrutiny wants to make microscopic
discoveries of little management imperfections characteristic of every business, big or
small. What matters is that we achieved $ 1.2 million in export sales during 1997-99
amidst various procedural difficulties and limitations and the same overseas customer
placed an order on Nov. 5, 1999 vide purchase order EA No.5133,5134,5135
confirming terms of payment as L/C 30 days for US $ 803,750 (equal at the day’s
exchange rate of Rs.3.43 crores) to be shipped- out during Jan. – July 2000. Goods
were to the produced afresh, and it required swift action. These records were
immediately presented to the bank and nothing happened for 3 weeks. Vide our
letter to the bank dated 26/11/1999 to the bank it was shown that Rs.2.3 crores out
of Rs.3.4 crores worth of orders were to be shipped within the next 120 days. As
on this date our PCL still remained as Rs.60 lakhs with immense procedural
difficulties plaguing us from availing even the Rs.60 lakhs in full. To executive the
orders on hand of Rs.3.42 crores, out of which 2.4 crores worth of goods were to
be shipped with the next 120 days we requested sufficient limits ( our requirement
was a PCL of at least Rs.160 lakhs) to be made available, and we even proposed that
the limits be sanctioned as temporary limits, in order to make the bank feel
comfortable. The bank was silent. There were at least two other banks willing
to take over the account, but Federal Bank wouldn't allow that. It did not
look at our requirement either and nothing happened until Jan 14, 2000. Alarmed by
the production delays that resulted from the bank’s irresponsiveness we agreed for a
reduction in the volume of goods, as forced by the banking situation. The Revised
schedule was submitted to bank and on 29/02/2000 for response at least at that
stage. We pointed out that the orders on hand for exceeded the available limit of
Rs.60 lakhs. Even at this time we were making requests and special requests to make
the Rs.60 lakhs fully available. The bank watched time elapsed except for an increase
in limits granted on 31.8.2000 – 10 months after the time sensitive, urgent request,
after all the time elapsed to execute the order, after the order collapsed, from Rs 60
lakhs to Rs 80 lakhs, an apparent increase in limits of Rs 20 lakhs out of which it is
recollected that over a half was absorbed in interest debits and about Rs 7 lakhs was
all that was effectively made available, too little too late, after all the damage was
done. Even at this stage, to avoid a complete collapse, we asked for a comprehensive
review of our account, talked to the branch and region and sent a repetitive, vivid
and polite representation to the Chairman and the bank was silent all the time, to
watch the account slip into an NPA and on to total collapse. The scrutiny report
doesn't talk about aspects such as this.
The so called scrutiny has evidently failed to examine relevant records and chose to
make guesses in favor of the bank, to mislead and deter, by paperwork, the
higher officials of the Reserve Bank of India and the Ministry of Finance. The
essence of all the communication with the bank was procedural delays that affected our
progress, which was completely glossed over and carefully overlooked by those who
framed this report. It for instance cites one of our letters out of context, “ We have not
preformed [well] for the last 12 months” “our performance during the last 6 months
have been minimal” which were candid descriptions of the DETAILS of the status of our
operations in our communications which were essentially to implore the bank not to
weaken us but grant us the facilities applied for and pending. The design is to frame the
complainant, so the Scrutiny note goes on make guesses - the borrower said his
performance was minimal, so the DEPB benefits on exports could not be enough to fund the
investments. “The amount of DEPB benefit accrued to the exporter could not be
ascertained” “The contention of the borrower that the infrastructure was built up
exclusively utilizing the entire profit and the DEPB benefits was indeed questionable.“
4. The so called “scrutiny” negates the fact that Drawback / DEPB benefits accrued
were utilized for creation of the required basic infrastructure assets,. The scrutiny
report says that the “borrower indicated that until October 1999 export sales were
minimal .... Hence the contention that they had utilized the profit & DEPB benefits
can not be true as these were assumed minimal till 1998-99”
This is amazing. The method of negation is amazing. The RBI scrutiny wouldn't notice
that our export sales was 39.70 lakhs in 1996-97, Rs 150.49 lakhs in 1997-98, 200.54
lakhs in 1998-99, but would choose to quote an introductory statement from one of
our letters so totally inappropriately out of context to say “export sales were
minimal” . It requires a peculiar expertise in distortion to ignore what is on record
everywhere - the actual figures - to choose to guess in favor of the bank. If the RBI
officer chose to play the bank's advocate, he could have been a little more
imaginative in his attempts than to negate accrual of DEPB and drawback proceeds.
What prevented RBI from asking us to furnish proof of DEPB benefits ? What limited
the scrutiny in the terms of reference, if any, from asking the DGFT or the Customs
House, which are under the same Ministry as RBI is under, for details of our export
performance or DEPB and Drawback benefits as accrued?
The Scrutiny note is of this manipulative logic:
I won't look at the facts, nor would I verify facts

because the facts would be established.
↓
So I will make a guess, that this company
could not have earned so much in DEPB benefits.
↓
By making this guess, I negate the fact that
essential assets were created with DEPB proceeds.
↓
That conclusion would lead to the next favorable
guess of diversion of funds.
↓
This guess, subtly reported would cause the higher
authorities to make more guesses.
(The first few exports amounting approximately amounting to less than $ 250,000 were
under drawback at rates 7% and most of the later exports at DEPB amounting to 12%
during 1998-99 reduced to 8% during late 2000 )
1996-97 Exports US $ 106,600

1997-98 Exports US $ 410,846
1998-99 Exports US $ 473475
1999-00 Exports US $ 356,588
If the scrutiny did not have time to scrutinize in detail, even a rapid look at these figures
would have given rough estimates of over 50 lakhs of DEPB and drawback benefits on
an average of 10% as benefits.
The DEPB and drawback benefits went into creation of the REQUIRED,
BASIC operational assets, created transparently, with periodic information to
the Branch management, with full knowledge of the branch management, with one or
two in-process-invitations to the branch managements to visit the assets created. For
instance, the stocks were held during the period 1998 – 2001 in a 5000 square feet
warehouse built with the DEPB proceeds which the bank now tries hard to establish as
assets created without its knowledge. The weaving machines, another asset created with
the DEPB proceeds were in a rented building visited by the branch manager several
times to inspect the stocks held at the weaving factory which was one of the inhouse
location of stocks held. The branch manager has visited the office premises of area
2000 square feet several times, another asset created with the DEPB / Drawback
proceeds.
This assets have been listed as created in several of our communications to the branch
management, regional office and the chairman, during 1998 2003 and to RBI and to the
Finance Ministry during 2002 – till date. The Scrutiny report employs the phrase
“diversion of funds” to divert the issue. There was no diversion of funds.
Armed with an extraordinary skill in twisted paperwork, the scrutiny did not have to
look elsewhere. It extracted passages verbatim from our communication to the ministry,
quoted passages out of context, mixed up the chronology to discover (!) or unearth (!)
assets created, make an inappropriate surmise of misappropriation of funds and place
paperwork, classified, internally on record to be cited by the officers of RBI to block
attention by the higher functionaries as the Governor of the Reserve Bank of India or
the Minister of Finance to whom our communication had been addressed. We are
relieved that the Scrutiny did not comment on such luxuries as our telephone
connections obtained or a personal computer bought or an overseas trip taken.
The following are the factual details related to Drawback proceeds / Duty Drawback
which together with the profits generated were used to create the necessary, functional
assets for operations. The details are retrieved from the books and computerized
records by the Director of the company in the absence of accounting or clerical help, so
the following details are not exhaustive. The details retrieved approximately are for
Drawback and DEPB benefits for an FOB value of $ 800,000 - $ 900,000 whereas the
total exports amount to about 1.5 million. We may need to find our erstwhile
accountant to draw up a more complete picture.
Dates Details (NOT EXHAUSTIVE) Amount in Rs
06/03/97 Drawback by cheque 37835 A 28340473
04/11/97 Drawback by cheque 32115 352776
27/1/98 Drawback by cheque 41059 333608
23.10.98 Drawback by cheque 243012
31.12.98 Drawback by cheque 105096 Jorunal 303
Sbill 3932 / 26.09.97, 1388 / 12/11/97,
3704 dt 24/11/98, 1787/ 10/12/98,
1181 dt 09/01/99 of total FOB Value
18/6/99 DEBP 32601069 dt 18/6/99 1135097 INR 94,59,145 from Tuticorin
DCW, 11/8/99 CUB cheque 760980 dt
Ptemium on the above 36890 11/8/99
4069 dt 18/2/99, 4070 dt 18/2/99, 6084

dt 27.8.99 6085 dt 27.3.99, 1682 dt
9.6.99, 6083 dt 30.6.99, 6142, 6143 dt
22/11/99 DEPB 32601682/C/xx/MC/2000 684407 27.7.99
01/12/99 Premium on the above 54752
5742/30/11/99, 3680 24/01/00, 4498
22/02/2000, 4497 22/02/2000 from
29/6/2000 DEPB 3210001187 342239 Tuticorin FOB 2933211
27/9/2000 DEPB 3210002149 347786
Drawback Autodebitted at Indian
30.10.2000 Overseas Bank, Tuticorin Branch 101986
03/11/00 Overseas Bank, Tuticorin Branch 85745
1758/10/9/98, 1759/10/9/98, 986 dt
30/5/2001 DEPB 3210004370 520955 9/12/2000 fob 4580954 tuticorin
05/03/01 Drawback 1151 / 9/3/2001 0 FOB Value INR 997969
21/4/2001 drawback 92816
08/02/00 DEPB 3210001186 5529
15/9/2000 DEPB 11990 Export from Chennai port,
10/08/01 DEPB 3210005166 79837
Total as extracted from some of the available
records, without accounting/clerical help 4096421
5. The terms of reference for the inspection is still not known to us, but in scrutinizing
a complaint of this nature, the inspection has ignored the staff history of the
Erode branch. (We are in business and it is not our business to complain and
reform every organization we ineract with, but this reference to these two officers is
inevitable at this stage, without which a complete picture does not emerge at all. All
our communication to the Regional Office since 2000, to the bank's Chairman since
2001 and to RBI so far, has been gentle on this detail, except perhaps a hint at
“administrative irregularities” and even now it is toned down on details. ) An Officer
designated in-charge of Foreign Exchange transactions was under serious
investigation on charges of compromising the integrity of the accounts at the branch.
We have also heard that the bank went to the extent of filing a police complaint and
that an FIR had been registered on charges that he had forged signatures. Our
account was one that was under his supervision for nearly two years. And we were
known to be too gentle and gullible with the bank statements and the absence of
them, except on an incident of alertness on the part of our Chartered Accountants
at Chennai. This happened when we were subjected to informal and friendly pressure
by the Branch management to extend a temporary adjustment loan of INR 2 lakhs to
another accountholder whose irregularities were causing problems for the Branch
Manager. Though we (Directors) refused a written complaint, the Regional Manager
placed his conversation with our Chartered Accountants on record as a memo which
caused an internal investigation to happen. The interval investigation, as indicated by
the Officer-Vigilance of the bank during his visit to our office, proceeded against that
Senior Manager of the bank on various charges including bribery and he was already
suspended and demoted and it is not known what further action was taken against
him. Our account suffered immensely under these two overlapping / subsequent
branch managements. More so due to the perception that the actions on the two
officers were on account of our complaint. (We did not complain, we did not
complain at all, we did not choose to, but for that incident our Chartered
Accountants conversation with the Regional Manager on his own initiative when they
felt that we were being exploited.) Whether the bank chose to report these serious
irregularities (in various forms with various accounts of that period) to RBI is not
known, but what followed the two incidents was a massive “overhaul” of accounts at
the Erode branch. There was a change of branch management with a Mr. Yacov
posted as Branch Manager and the branch which worked its way to hastily close
several accounts that were handled by the two earlier branch managements.
6. The Scrutiny Report is in so much admiration of the bank's accounting system “The
packing credits released were recorded in the ledger and the transactions were
routed through the current account” “ We have also obtained a computer
generated statement of account of the borrower and did not find any ambiguity”
The integrity of accounts were compromised during the period and perhaps to
cover up the lapses that occurred, the bank evasively refuses to furnish a
comprehensive statement of accounts to us. First requested and denied at the branch
level, then sent in writing by email to the Head Office on July 2002, replied for
record by Cletus, AGM, Federal Bank, vide letter GAD/S32/MDS 649 which for the
sake of record “the branch had always provided with the required particulars /
statements” and denies that we ever approached the branch for the particulars. For
which we responded on 19th July 2002 that “We have asked for a consolidated
statement, which has never been part of the bank's accounting system. Our request
by email was essentially addressed to the Senior Manager at Erode with a copy to9t
he Chairman, because the difficulties related to our account has been represented to
the Chairman and awaiting his reply for a very long time now. [ next paragraph ]
What was asked for was a comprehensive statement, and the request was sent in
writing by email, to the branch's email address with a copy to the Chairman's
address.... What is the difficulty in sending us the statement by mail ? If the report is
ready, someone from our company could go there to collect the statement” [ next
paragraph ] Please also understand that the request for a comprehensive statement is
in NO way a complaint about the present branch management, but a request bourne
out of overall difficulties at the Branch level that we suffered from for the past 6
years” This is the sequence that the request for a legible statement of accounts
followed, which has been exasperating:
i) Branch level in person requests denied for months.

ii) E-mail to the Branch with a copy to the Chairman on 07/07/2002 as above
iii) Follow up email on 19th July 2002 as described above
iv) Follow up email on 13th August 2003 with a clear description of why it was
required
v) E-mail to the Chairman on 13th August 2003 with a copy to the Chairman's
Secretariat with a request to place the email for the Chairman's attention
vi) E-mail to the branch and the Chairman and the Regional Office on 31st August
2003 repeating the requests
vii)E-mail to the RBI and the Finance Minister on 31st August on the overall
difficulties which also contained a reference to the pending request for
accounts
viii)Letter to the Minister for Commerce and Industry on September 04, 2003
ix) A petition at the DRT, Coimbatore for a comprehensive statement of
accounts – IA 699 of 2003 in OA 268 of 2003 filed on 4.12.2003
x) Counter filed by the Senior Manager Federal Bank on 17.07.2004 refusing the
statement of accounts on the grounds that “Borrowers have executed balance
confirmation on 29.8.2000 ( as part of the documentation spanning over a
hundred pages requiring over a hundred signatures taken to enhance the
limits )
xi) Various documents filed as annexures to the IA at the DRT, Coimbatore on
3.1.2005 and later at the DRAT to show that the bank's accounting system
was riddled with ambiguities and complexities
xii)On 4.3.2005 the petition was dismissed for default citing the absence of
absence of the petitioners. The order was, during an inspection of records at
the DRT, accidentally noticed handwritten behind the folded affidavit/petition,
not recorded in the court diary, nor communicated to us as petitioners or to
our attorneys.
xiii)As a coincidence there was no Presiding Officer at the DRT Coimbatore for
a long time and hearing on the petition was re-posted over 8 times to
intervals of 90 days each time, causing a time lapse that was favorable to the
bank
xiv)During these delays we reminded the Branch Manager at Erode about our
request for a comprehensive statement of accounts, pending for over 4 years
as of March 7, 2006 when the letter was sent, this time with an initial
payment of Rs 500 towards costs by DD (UTI bank, Erode, DD No 6636
dated 7 March 2006) which was returned by the Manager, Erode branch vide
letter ERO/657/06, undated, with the excuse “since the matter is sub-judice
we are unable to provide any further details on this matter. We have
provided all details to DRT Coimbatore and you can have it from them
through your advocate”
xv)That is not true. The bank has only been resisting the petition for details at
the DRT and has only been dodging the petition at the DRT.
xvi)IA 566 of 2006 in OA 268 was filed praying for production of accounts, even
against costs, at the DRT Coimbatore on 19.7. 2006 after noticing the order
of dismissal of the earlier IA on the same subject dismissed by the Presiding
Officer on 13th November 2006 objecting to a fresh petition instead of a
review of the earlier petition with other remarks (later erased by the DRAT)
xvii)An appeal against the two orders filed at the DRAT, Chennai on 29.11.2006.
DRAT ordered the Presiding Officer's remarks erased and allowed us as
appellants to go back to the earlier IA which was dismissed by default.
xviii)An application was filed before the DRT Coimbatore by February2007 with
a change of Counsel, hearing on the petition delayed for 6 months as DRT
Coimbatore moved some cases to DRT Madurai then back to DRT
Coimbatore. This is another coincidence that delayed hearing on the process
of justice. The petition came up for hearing to restore on 5th September 2007,
again on 14th September 2007 and the bank continues adamantly refuses the
fundamental request for proof of liability, with empty arguments.
7. The scrutiny took notes attempt to deter RBI and the Government by pointing to
the developments that the bank has moved DRT, but makes no remarks about the
glaring superficiality of the bank's attempt to stall scrutiny. The bank moved DRT to
say that it has moved DRT. The Bank had moved DRT with a list of Packing
Credit withdrawals during July 2000 and March 2001, and application of
interest thereafter, with remittances suppressed even for this arbitrary
period. The statement filed in its case before the DRT did not show any particulars
of repayment and presents a picture of a borrower who borrowed Rs 80 lakhs,
never repaid any of the loans and never serviced interest.
The logic of the bank's case at the DRT is as illustrated below
Whitefield Cottons' Whitefield Cottons'

Day of the week Withdrawals Deposits
Monday 15 20
Tuesday 15 20
Wednesday 15 0
Thursday 15 40
Friday 15 0
Balance outstanding by this illustration +5
Bank goes to court with a claim for

Opening Balance 0 0
Thursday 15 Deposit not shown
Friday 15
Bank's claim of outstandings 30

Interest and interest on interest 30
Total claim by the bank 60
The bank moves court with a claim of 30 and interest thereon. It is case is that
Whitefield Cotton withdrew 15 on Thursday and 15 on Friday. Its statement of
accounts filed at the court shows two columns and two rows, the second
column unfilled, the first column showing 15 against Thursday and 15 against
Friday, so the total is 30.
The legal frame work is simple: Did you borrow 15 on Thursday? Did you
borrow 15 on Friday? Did you sign? Say yes, and pay up.
The court does not understand how and why it is important to concede a
petition for transaction particulars for Monday, Tuesday and Wednesday; or
why it is important for the company to verify the opening balance on Thursday
that was not zero. The court does not understand that the second column is
important and has to be filled in.
The bank argues that the case pertains to Column 1, so Column 2 is irrelevant.
The DRT does not take note that even during those two days the repayment
amounts to 40. It says the case about Column 1. That the DRT is non-technical
on the basics of banking process is unfortunate:
Do you want me to order details of Column 2 issued to you? Pay up-front half of
what the bank wants, then I will order. No, no, I will not order the bank to
issue all particulars. Maybe items 1 to 6 in the list of accounting particulars that
you have petitioned for, but not Detail No 7, namely direct payment of ECGC
premiums from the bank. No, no, I won't even order particulars 1 to 6 issued, I
am quashing the petition.
This basic petition for details has been successfully evaded by the bank for 5
years now, and DRT, which by title and by defined theme is for “Debt
Recovery”, not “Debts / Claims Reconciliation or Adjudication”
refuses to understand the chooses not to go into the complexities of the case.
The account with the bank was since June 2006, Packing Credit Account was an
ongoing account with total withdrawals in the region of Rs 4-5 crores with
remittances automatically adjusted towards interest and repayment amounting to
US $ 1.5 million equal to an excess of Rs 6 crores. All export proceeds were
routed through the bank without exception, internally adjusted by the bank
towards repayment, payment of an arbitrary ECGC premium for insurance that
the bank did not follow upon, bank charges, Pre and Post shipment interest and
appropriate and inappropriate bank charges The complexities and inadequacies
are more clearly explained as below:
The scrutiny report says “We have also obtained a computer generated
statement of account of the borrower and we find not find any ambiguity” This
ought to be the 'computer generated record' of the CURRENT ACCOUNT
through which Packing Credit Loans were routed. This statement showed PCL
withdrawals and did not show PCL repayments. This statement did not record
internal adjustments or deductions of Interest and Bank Charges at source, i.e.,
on receipt of export proceeds of over US $ 1.5 million routed through the bank
through various sub accounts namely FUBP / FDDP / RABC as the bank chose to
categorize bills purchased at its fancy.
Sequence was ( as shown in the flow chart attached to our letter sent on 27
November 2004 )
a) PCL is requested and transferred to the Current Account and the

“computerised” statement shows the transferred PCL ( say 3 lakhs for the
day ) as available balance. (The bank NEVER issued a PCL Account statement
showing the opening balance of PCL outstanding, a complete list of PCL
transfers, interest applied and the PCL outstanding from time to time. The
PCL register was not computerised and not even a manual statement were
issued. )
b) Available balance in Current Account withdrawn in parts to meet the Pre
Shipment purchase and administrative requirements. Current Account shows
the Current Account balance outstanding, not PCL outstanding.
c) Exports were made under letters of Credit and the Bank PURCHASES bills
under the FUBP/FDDP/RABC sub accounts No statement of accounts was
ever issued by the bank on FUBP/FDDP/RABC accounts. The
FUBP/FDDP/RABC accounts that handled over $ 1.5 million of our export
proceeds were not computerized at that time nor a manual passbook was
issued.
d) On the day of the Bills Purchase, illustratively, a bill of $ 50,000 for Rs 20
lakhs, the bank would internally DEBIT Rs 75000 to PCL interest, Rs 50,000
to FUBP interest, Rs 10,000 towards ECGC premium, Rs 10,000 towards
bank charges, sometimes retain Rs 1 lakh as deposits in the name of the
Directors and retain the Deposit receipt, and debit another 5,000 towards
charges that were illegible, and then transfer the balance, if there was no
other PCL to be repaid, Rs, 2.50 lakhs to the Current Account which is the
only entry shown in the Current Account which would read “By FUBP XX Rs
2.50 lakhs.
e) And on later dates, if there was a short realization ( mostly it was about $ 40
dollars on a typical invoice of $50,000) the bank would debit again by the
same FUBP number an equal sum to the Current Account.
We have no clear statements to understand what was the Principal outstanding,

total PCL withdrawn, total Bills negotiated, total interest on PCL, interest on
FUBP, interest on RABC, interest on FDDP, total bank charges. Besides there
were unexplained entries in the Current Account shown as “By Backdate
Correction”. We still do not have a clear idea of the actual PCL principal
outstanding and what constitutes the principal outstanding.
The bank moved DRT with a list of PCLs transferred to Current Account during
an arbitrary period of 9 months in an account that spanned 6 years preceding
2002, taking the opening balance as Zero and it was never Zero. No repayments
were shown, which were in excess of Rs 6 crores till 2002, not even for the
bank's choice of the arbitrary period.
The choice of the arbitrary period is not explained
The bank's list of PCLs released during July 2000 and March 2001 totalling Rs
79,75,000 and Interest debits at rates it fancied amounting to Rs 44,39, 848 for
the period July 2007 to August 2003 adding up to a total claim of Rs 1,24,14,848.
Even for this period the details of bills purchased, amounting to in excess of INR
6.1 million were not shown. The bank has been consistently dodging all requests
made in court and out of court for the details.
Just as the petition is finally being heard at the DRT, the bank has sent us a
notice under Section 13 (2) of the Securitization and Reconstruction of Financial
Assets Act of 2002, this time treating Rs 124,14,848 as Principal and Rs
90,80,185 as Interest, which by itself proves that the bank has a chaotic system of
accounting and its ethics are to profit by any means.
It has been unfortunate that the higher officers of the RBI has allowed
themselves to be dissuaded from acting upon the complaint by a such a
partisan scrutiny report of gross inadequacies.
8. The Scrutiny Note, on the Bank's unwillingness neither to evaluate a Term Loan
requirement together with its policies and practices not to allow any other lending
institution to lend, concludes that “there was no ground to believe that the bank
prevented him from availing the loan.” The 'scrutiny' officers again quote passages in
selective bits and pieces to arrive at a totally wrong summary of the communication
cited.
The scrutiny report is passionate in its purpose to defend the bank and is at a loss of
words to paint a picture of falsehood on us.
It is as if the tools of scrutiny was a ' cryptographically perforated magic
stencil ' to read one or two lines in a long letter, suitable to be quoted
broken and out of context to arrive at a misleading summary that would
effectively deter the attention of the higher officials including the Governor of the
Reserve Bank of India on this issue to dismiss this entirely as a complaint that “does
not hold water”. It wouldn't examine facts but would fish out something that we
have said in some context, in broken quotes, out of context to arrive at a conclusion
to defend the bank. It rather appears as paperwork drafted by a bank's advocate
whose avowed purpose is aggressive offense as a strategy for defense. We obtained
a Term Loan sanction from Sipcot for Rs 1.5 crores, paid an “up-front fee of Rs 1.5
lakhs, pledged a more valuable collateral, registered the charge with the Registrar of
Companies etc. with the opinion pending from Federal bank that the company
already has working capital facilities. After a change of branch management, the
branch at Erode was seen uncomfortable with the sanction from SIPCOT, we were
repeatedly asked questions about the status of the project, how the margin money
was to brought in (by internal accruals and by sale of a property), what portion of the
term loan was availed (none), until we showed a willingness to have all the facilities
within the bank. This was the best that we could do under the circumstances - the
bank had once refused to pursue the Term Loan Application, and now uncomfortable
with a sanction from elsewhere. We met the AGM, Federal Bank at Chennai on 9th
March along with details of the sanction from SIPCOT, followed by a letter that
outlined the project cost break up and the status of the project with details as to
how the margin money was to be brought in. Then the Regional Office insisted on an
undertaking which was sent by fax on 26/3/1999 as dictated by the Regional Office “
We have not so far availed the above said term loan” “ We herby undertake to
appraise and inform M/s Federal Bank Ltd, as to the developments in the above
project”, etc. which in effect INTERJECTED Federal Bank as a self appointed
authority to sanction the utilization of a term loan sanctioned by another
institution. ( SIPCOT, the State Industries Promotion Corporation of Tamilnadu,
which was then headed by a positive Officer from the Indian Administrative Services
who was swift in leading the team of General Managers to appraise, and equally swift
in taking the proposal to the Board to obtain the sanction, had at lower levels
officers who did everything to assert their powers to make or destroy, by
perpetuating the post sanction process in terms of documentation delays etc. We
bought 1.92 acres of land from Sipcot, again with a cheque for Rs 6 lakhs directly
handed over to the Managing Director during an event at Ooty to promote an
industrial zone, a plot was immediately allotted, but after 6 months we noticed it
encroached. Objections were not heeded and a solution was not offered for about 3
years in spite of repeated communication, the issue remained unresolved till the end
till we agreed to take back the Deposit, about 95% of what was paid, without
interest, from another Managing Director of SIPCOT, who opted to solve the
encroachment issue by closing it with a refund after three years of inaction. The
hurdles faced at SIPCOT makes another episode and we do not have the legal
environment in India for timely adjudication of the overall harm done to us by the
lower levels of officers at SIPCOT). Such hurdles collapsed the Weaving Project even
before it was implemented, post sanction from SIPCOT. The bank's role in this was
its refusal to send a letter to SIPCOT to say that we had an account with Federal
Bank for our Working Capital needs, a letter which was cited as an important
requirement by SIPCOT to begin the disbursement process which never began. Over
and above that the bank seemed keen on preventing us from utilizing the term loan
sanctioned as evident from the undertakings that it took from us, from the clauses
that it imposed on us during enhancement / renewal of limits.
9. The scrutiny has not gone into the sequence of the manner in which the bank dealt
with our term loan requirements, which had a separate history on its own. As a
customer already having a PCL of Rs 15 lakhs and an FUBP facility of Rs 20 lakhs we
approached the Head Office through the branch with an Application for Term Loan,
filled in with all particulars, complete with supporting papers which was submitted
on or about 17th October 1996, further papers and workings submitted on 22nd
December 1996 and 31st December 1996, forwarded by the Manager to the The
chief Manager, Foreign Exchange Department on January 25, 1997. We travelled
along with our Chartered Account Mr. K R Kumar to Alwaye during January 2007
where the proposal was met receptively by a Mr. Vijayakumar ( AGM or DGM ) and
another Senior Manager at Forex. Later the General Advances Department sent us a
letter on 10/2/97 wide GAD / L-72/1430/97 saying the proposal stands declined. It
cited the reason “ our scheme for foreign currency loans envisages only granting of
working capital limits for 180 days and not term loans”. We responded with the
clarification to consider a rupee denominated loan and pointed out that the proposal
for first phase fell within Rs 3 crores and is eligible for Priority Advance in
accordance with the prevailing rules, that the project was export oriented, etc in 3
pages and sent to The Branch Manager, The Regional Manager, Chennai and to the
DGM, Foreign Exchange Department on 18/2/1997. This was followed by some more
communication to the AGM at Regional Office and to the Head Office and the bank
did not entertain the proposal.
10.In the same section the report says “ the borrower had reportedly approached the
South Indian Bank and Federal Bank was called over telephone and the branch had
reportedly informed the outstanding dues of the borrowers ” In continuation it says
that “There was nothing on record to indicate that the branch had prevented other
banks from extending credit facilities to the borrower” . South Indian Bank had
shown interest in extending the required facilities, at least to the tune of 1.6 crores
of Packing credit / PCL together with 1.0 crore of FUBP and the formal application
was submitted on 26.7.2000 after continuous receptive meetings with the branch
manager over the previous few days. Further papers were submitted on 2.9.2000 and
the limits with Federal Bank were disclosed up-front as early as the very first meeting
with the Manager, South Indian Bank, in complete detail. (South Indian Bank was next
door to Federal bank's Erode branch at that time.) South Indian Bank had been
receptive and processed the application swiftly and on the verge of granting facilities
received a letter from Federal Bank which conveyed Federal Bank's unwillingness to
allow the transfer of the account in a very brief message of about three lines. If a
phone conversation as reported in the scrutiny also happened, it is not known to us, it
ought to have been of a far more deterrent and premptive influence on South Indian
Bank. South Indian Bank signed off from processing the application further, on the
verge of granting facilities, because Federal bank did not consider it a permissible
practice. The limits / outstanding at Federal bank at that time need not have been a
concern, neither to South Indian Bank which knew the complete particulars up-front,
nor to Federal bank because South Indian Bank would have taken over the facilities at
one stroke, if the transfer of account was permitted by Federal bank. The bank was a
'dog in the monger' neither allowing facilities on its own, nor allowing any other bank
– South Indian Bank, State Bank of India, Bank of Nova Scotia, IDBI, Sipcot on
various dates.
11.The Scrutiny note negates the facts pertaining to inordinate delays simply by
assuming its own norms as to what constitutes an effective date of submission of an
application for facilities. The report cites dates seen on documents such as
“Application of Limits” which are customarily issued to be filled in at the sanctioning
stage of the process. The practices were ( or continue to be, we don't know) such
that the “Application of Limits” was a document almost issued post-sanction, which
was a stage that took months to reach. If the dates on the application of limits (the
entire application forms were sometimes filled in by the Branch Manager himself) are
to be taken as evidence, the picture that would emerge is one of that of an
application, sanction, documentation and disbursement, all of which almost on the
same day, instantaneous, while in reality it did took 180 days for the bank to partially
consider our request and 720 days to fully grant our needs which as stated earlier as
during the time lapsed the needs multiplied and the sanction as sought 720 days
earlier became “was too little, too late” With a definite intent, the Report negates
the fact that there were inordinate delays by its own erroneous norms of what
constitutes an effective date of a loan application It says “ the loan applications
... were merely letters ... not submitted with the requisite documents ... “ The report
is based on documents selectively made available with hundreds of pages of letters
and correspondence and financial workings wrapped up or destroyed by the bank, all
of which could have easily come to light had the inspection sought to examine the
papers that we have on our files It did not intend to. The intention was to make a
passionate plea and extol that the bank was wonderfully right. The chronology that
we have furnished is vivid as shown in the Annexures to this letter.
12.The report cites an earlier report which is NOT released to us as part of the
documents released on April 10, 2007 by RBI that the delay in disbursal of limits
were due to delay in execution of documentation, delay in receipt of LC and
discrepancies in LCs. Almost for the entire length of our transactions during 1996
-2001, especially during the first four years, the Bank of Montreal had trouble
telexing the Letters of Credit direct to the Bank, the Letters of Credit were telexed /
sent by SWIFT to various banks ranging from Canara Bank, State Bank of India, Bank
of Nova Scotia, with a faxed copy of the L/C sent to us through our overseas
customer simultaneously. The bank wouldn't accept a faxed copy of the telexed
message, but would insist on the original L/C often sent to us by the branches
located in Calcutta or Bangalore or Coimbatore by post which took time. On one or
two occasions when the L/C was sent direct to Federal bank, the branch would say
the L/C was not received, which made us make repeated phone calls / send fax
messages to our overseas client who would unnecessary have to ask the Bank of
Montreal for particulars and once I recollect the overseas client telling me by phone
“ I have asked the Bank of Montreal, I have asked them again, IT IS THERE, THE L/C
IS THERE” I would then have to go back to the Branch and insist on internal follow
up to retrieve the telexed document. These were the so called delays in receipt of
LCs that the scrutiny report talks about. The delays were due to the inadequacies of
the bank's comminution mechanism or due to its inadequate status with first class
banks. The discrepancies talked about are trivial discrepancies, Port of Destination
shown in the Bill of Lading as Halifax which was the destination port while the Port
of Destination specified in the L/C was the overseas customer's location in Montreal.
The Destination Delivery was always ordered as part of the shipping instructions to
our Shipping Service, this was a recurrent “discrepancy”. The inspection report fails
to observe that NONE OF THE OVER 50 LETTERS OF CREDIT WERE UNPAID.
ALL LETTERS OF CREDIT FROM THIS OVERSEAS CUSTOMER WERE PAID IN
FULL, IN TIME, HONORED WITHOUT FAIL.
13.The “scrutiny” assumes the delays in execution of documents as the fault of the
borrower rather than examine them as one of the procedural hurdles that we
originally complained about. The bank has taken over a thousand signatures each
from each of the Directors and Guarantors and there were over a thousand pages of
documents signed by the Directors and Guarantor as per the bank's format. All this
has been done across the table as instantly as the bank placed them on the table. If
there was delay in execution of documents, we could cite one instance where in an
ancestral property of area 1000 square feet was pledged as collateral, which was free
of encumbrances and clear in title, yards away from the location of the bank at that
point of time, and the bank kept raising trivial objections repeatedly on a portion of
159 square feet of the pledged property that the boundaries were not clearly
specified. We obtained legal opinion, explained very clearly that the boundaries were
clear, and in the face of persistent objections REPLACED the property with another
property, more valuable, of an area of 6000 square feet. This was valued at Rs 59
lakhs against a prevailing limit of Rs 15 lakhs at that time. But in subsequent
documentations the bank chose to create records as if the security pledged was both
the properties, which became a surprise to the Guarantor. The procedural delays
were of the nature of pushing us to a corner until we turned around and said
“What do you require?”. This has always happened and we lived with this
“procedural” hurdles for over 4 years.
14.The overall tone of the inspection report was one-sided. It quotes convenient
passages from a convenient choice from among our several communication to the
bank, selectively and misleadingly, out of context, with the essence of all the
communication totally suppressed or glossed over. The most important of our
letters to the bank were not taken note of and the overall essence of all our
communication is wilfully missed and kept completely suppressed out of view in the
scrutiny report.
The scrutiny report cites from convenient records made selectively available by the
bank, quotes out of context to make a passionate plea in favor of the bank which in
reality had a chaotic climate of banking which reversed and crippled all the progress
this company made during 1996 – 2000 even amidst the restrictive banking climate.
The scrutiny Report does not make any mention of over four hundred letters / fax
messages / email messages sent to the bank pointing out how our prospects and
performance was affected by the delays caused by the bank in appraising our credit
needs.
15. The scrutiny smoothly skips the crucial letter addressed to the Chairman of the
Bank which was repeatedly sent by registered post and by email as also copied to the
branch and the region. Care was taken even to address a separate communication to
the Chairman's Secretariat to bring the communication to the Chairman's attention.
Copies were marked to the Branch Manager on some occasions and to the Regional
Manager. What was sent by email was followed by by a printed letter sent by
Registered Post / Speed Post and occasionally by courier. Short of personally
dropping the letters on the Chairman's workbench, everything else was done to
make sure that the communication reached him. The scrutiny report skips the
“letter” (not one letter, several letters and email messages) totally, simply by saying
“there was no record held in the branch and hence, the disposal of these complaints
could not be ascertained” The Scrutiny Officer's choice of passages to quote, from
among the hundreds of letters that we have sent to the bank, make us wonder if RBI
team has been engaged by the Bank as its Defense team. With a magic eye to find
fault and an extraordinary skill in paperwork the scrutiny concocts the bank's choice
of passages from our own communication, skipped the essential content that were
the facts, and omitted communication unfavorable to the bank.
16.An institution such as the Reserve Bank of India ought to have been careful in
allowing loose, unqualified and defamatory remarks on us as complainants
such as “ the charges of the borrower against the bank were borne out of
frustration”, “the borrower was over ambitious”, “the borrower overstretched”,
“diverted funds”, “the borrower's complaint does not hold water” These are
damaging remarks totally unqualified. We are irritated.
This was a company which progressed from an export performance of 40 lakhs to

150 lakhs to 200 lakhs in 3 years – when the rest of the textile industry was almost
universally and in particular in India, suffering, and had an order on hand for 3.23
crores to execute which the office scrutinizing the complaint found “overambitious”
Is RBI recommending a 2-5% annualized increase in performance for the Indian
manufacturing sector as the maximum practical or achievable growth ?
17.The report alleges a “sudden change in attitude” and spices it up further by mixing up
the chronology of events to suit the bank's convenience and had attempted to paint
the picture of reaction on the part of the borrower after the legal notice to recall the
advances, whereas the truth is exactly the opposite of what the Report claims. Our
initial correspondence to the bank were polite, and never hesitated to express the
help that the company has received in the form of financial assistance. Little did we
realize that we were profusely thanking the bank for getting us halfway across the
river to be abandoned to be drowned. Even in those communications which were
about time delays and about short appraised sanctions, the polite references to the
financial assistance received and an expression of gratitude were persistent.
Procedural problems were prevalent even from Day 1, but we were polite and
thankful for whatever was made available and were not assertive enough in the face
of limitations and hurdles that we experienced, till a point of time when it began to
reverse our progress and hurt our prospects that were so obvious with an order on
hand for US $ 823,000 that the bank's administrative system caused to collapse and
watched it collapse, incept of repeated, well defined communications at various
levels of the bank. It takes a certain strange bent of mind to cite from the earlier
letters to allege a “sudden change in attitude” to effectively plant a suggestion that it
followed the recall notice. The recall notice is what FOLLOWED our
complaints, not vice versa.
18.All our complaints were precise and well defined and accurately factual. The Scrutiny
note engages a typical ploy to dismiss the complaints with the sweeping remark
“none of the complaints ... were specific with supportive facts” What is seen here
is a total refusal to look at the facts and a definite report-design to deter
higher executives of the Reserve Bank of India and the Ministry of Finance from
examining the complaint with closer attention and to cover up the facts behind the
issue. The scrutiny report covers the bank.
19.The report lovingly disapproves the bank for “releasing PCs indiscriminately while
earlier PCs were overdue” , “non-verification of stocks in time” and stops short of
promulgating rules that would take banking to the dark ages of lending by pawn
brokerage and key loans.
20.Does it make any practical sense and is it ever truly adhered anywhere – the system
of a 25 or 33% margin on “working capital requirement” ( this was an export pre-
shipment advance ) and ensure in effect a 150% value of the loan for operations, all in
stock of goods? The bank wanted the papers for record, as it dictated and often such
paperwork was impractical and meaningless. [ This passage is written and retained in
this communication with the belief that yet another RBI officer compiling another
report wouldn't expand a summary of this vivid document entirely around the above
four lines of text in out of context quotes in italics ] The impracticality of the clause
related to stock statements, especially of the textile sector, is rather understood, by
the banking industry. A good, honest officer at the bank while asking us to indicate a
convenient time to visit us during the day for a stock inspection, would amuse me
with a playful question “ how much time do you need to “arrange” the stocks for
inspection ? “ Stock of goods held were never a basis for the grant of facilities, it was
at best an indication that the funds were employed for operations. In our case, we
have made it repeatedly clear that the various processes of production namely yarn
sizing, weaving, bleaching, tailoring and even packing until a certain point of time
were contracted out to several vendors at several locations as most textile
exporters with the exception of integrated textile manufacturing units operate. Our
stock statements always listed stocks in various locations, location by location, and
we have obtained permissions from the vendors when the need arose, and have
always enable inspections by the bank even at the vendors' premises. The report
cites one instance date not shown, “ the Senior Manager had visited the unit and
conducted stock audit .. stocks available both in the godown and factory would be to
the tune of Rs 40.00 lakhs... Though the Director of the company informed that they
held stock in process with various vendors/ processing units ... he was unable to
furnish the full details / delivery chalans etc . “ The senior manager wanted the list of
stock in process with various vendors and it was furnished to him. It was timed after
our letter to the Chairman of the bank, perhaps the beginning of the design by the
bank to destroy us by invoking clauses hitherto totally unimportant. It was part of the
bank's perparation to declare/justify an NPA status. We sent a clarification on stock
postion by our email dated 19th February 2002 to the Manager Federal Bank which
the Scrutiny Report fails to take note. Later in our letter to the Chairman on 17th
July 2003 which was included as part of the communication sent to Smt Usha Thorat
on August 31, 2003, we have repeated what we have been communicating to the
bank for almost three years “ During the last three years ... There were various ways
by which we were affected Our work in process of that time was rendered unusable
midway due to the situation forced upon us by the bank's total disregard for our
needs and the way it kept our account frozen...”; “ There were various other
practical business factors that come into play when the flow of resources were
blocked. For instance alternative market borrowings that were forced upon us by the
situation was prohibitively expensive The quality of materials purchased with
contingent market credit could not be assured. Time delays were expensive with a
multiplier effect One problem leads to a multiplicity of problems and the losses
multiplied, our various resources decayed during the last three years and the
combined effect is such that it absorbed the money invested in stocks and work in
progress...” In the same letter we listed the losses which causes the bank to defend
itself by causing our company collapse totally even without leaving the bare minimal
resources to seek any form of remedy. There was a particular reference to stocks in
various stages of processing with various vendors at risk which the bank conveniently
allowed to happen. Stock postion remained unaltered with a total unwillingness on
our part to place them on the local market or to deem them as “seconds” We held
on to stocks waiting for attention from the bank for a very long time. In the process,
a portion of the stocks midway in production with various vendors were
unretrievable, what was retrieved as in-process inventory was partially damaged and
continued to deteriorate unattended. In the end what little was saleable was sold at
disproportionately low prices during 2004 – 2006 to be absorbed by legal expenses
and for basic existence.
21.In business, a strange arithmetic operates in times of trouble. If the opening balance
of losses is 20 and the expenses during the year was 10 with zero revenues the net
result is never 20 + 10 = 30, which is an arithmetic that works in good times, but in
bad times it is always 20 + 10 + unknown + unexplainable = 60 or 70. The bank has
kept us in this situation for over 7 years now. The complex problems have
consumed two family properties in the process, sold to steer clear of problems. On
deeper examination the phenomenon of unexplainable arithmetic can be somewhat
understood. One aspect that can be examined is how the inventory value suffers.
Inventory value is one that plummets in inactivity. Raw Material bought for 100
rupees is easily saleable at the same price or a better price in times of flourishing
activity, saleable at a discounted 70 or 80 Rs in bad times, at half price at very bad
times, work in process ( INR 100 or RM + INR 50 value addition ), even in good
times is saleable at below raw material cost, say INR 70 or 80. In a situation of
inactivity this would drop down further due to perception of distress or unusability,
to INR 50 or 60. So already it is a third of what it cost to produce, not including the
interest and overheads mounting over and above the initial value of INR 100 + 50. If
such work in process is left unrecovered with the vendors or in a warehouse for
years, the damage caused is immense, sometimes, in cases where there is formation
of fungus etc, the value is negative. There have been instances where half or less
than half value was realized for any part of inventory retrieved from vendors and
there have also been instances where we have incurred a cost for removal of fungus
infested / damaged inventory.
22.While it was silent on the damage that it has caused us, and vocal in its defenses at
RBI with its own typical justifications, the bank has been unable to prove the integrity
of its accounting process with a resistance to allow us a statement of accounts, a
comprehensive one, with a list of repayments, interest debits and bank charge debits.
The bank moved DRT with a claim, we asked how much and how. This is such a
basic question. A comprehensive statement of accounts must be printable at the
touch of a button, if there is a good accounting system at the bank and if the bank
does not have any reasons to hide its books from us.
In its evasiveness on establishing the liability the bank's tactics have been circuitously
psychological by forcing us into a settlement without persisting on our original
complaint. While the case was pending at the DRT officers from the bank would
repeatedly visit the Guarantor's residence. The bank wouldn't answer us or face us,
but would go to the susceptible guarantor with slipshod details about the threat to
the property and would cause problems within the family and would cause the family
to force us to drop charges on the bank and seek a “settlement” which amounts to
paying what the bank claims is due with total retraction from the complaint. Such
tactics intensified problems within the family so much so that I had to send a
communication on record, by telegram on 21 Feb 2006 thorough a post office a mile
away to the bank's offices next door, to warn the manager of the bank to refrain
from such attempts. The Branch Manager came to my office to explain with his
version that the guarantors are interested in settling so the bank approached them.
The manager was pointedly told that the bank could negotiate with the guarantor to
surrender the property, but not negotiate with to settle the company's dues / claims,
which is our liability, if the net result is. The machiavellian harassments by the bank
through its circuitous route stopped for a while but attempt to pressurize us through
the guarantor continued which caused total disharmony between the guarantor and
his sister who is a Director of the company and culminated in a situation where we
had to prefer a complaint to the Deputy Inspector General of Police seeking
protection from one of the Guarantor's family members who, inflamed by the
repeated pressures from the bank to settle exhibited her anxieties on us by forcing
us to rush to a settlement. The family is broken up in the process.
23.Against this background which the bank has suppressed with its own ways and
methods, without still responding to how it arrived at its claim of 80 lakhs as
principal as filed at the DRT, the bank continues in its persistently arrogant belief that
a small company would not sustain the collective hardship imposed by the overall
banking system and practices. With this peristence, the bank has unfairly invoked
Section 13 (2) of the Securitization Act, and brushed aside our valid objections: This
is invoked for causing even greater stress on us through the Guarantor's family which
has now reasons to pressurize us into a settlement, because of the adverse publicity
that might result if the property is attached. The Act provides a relief in the form of a
provision for legal challenge, but AFTER all the harm is done.
This bank's inappropriate business methods has resulted in such dimensions of harm.
The works its way around the inadequacies of the regulatory mechanism characterised
by the Government's inability to be assertive with the banking system under
compulsions of, paradoxically, maintaining an investor friendly climate in the country.
All our communication were sent to the immense faith in our Government in general
and with high regards for the topmost reformist and spirited Politicians and
Administrators of swift executive skills. We believe that the Government will not
disregard the harm done and being done and the anguish caused to a small company and
the defenseless individuals, by a bank part of a cohesive banking system, that ought to be
a part of a vital component of India's growth needs, but is not.
In the Indian business context it is not unusual, nor considered a major offense to
circumnavigate an adverse legal status by renaming the company or by suppressing
adverse records by any other means. The Directors of Whitefield Cottons P Limited
have chosen not to acknowledge such methods as proper. We have waited for a
straight and fair solution which has so far proved very very expensive in terms of
opportunities foregone and the time lapsed, not to mention the disintegrative effect on
the family.
We believe that the Reserve Bank of India would take note of the inadequacies of its
own scrutiny of the complaint filed five years ago and still pending for a conclusive
solution.
We would request the Governor to annul the scrutiny report on file, retract any
reports sent to the Ministry of Finance (This is a complaint from a small company way
below the $100 million mark worthy of attention, but we nevertheless believe that the
Hon' Minister for Finance would have paid attention had the facts been laid on his table
in perspective) and other organs of the Government of India and reverse all the adverse
effects that such reports have caused and continue to cause us with credit rating
agencies such as Dun & Bradstreet, Coface, CIBIL, SMERA and other credit rating
organizations.
We would also request the Governor to look into the unfair circumstances of the
bank's attempts to cause further aggression in an attempt to reverse the focus from our
original complaint by its move to proceed further on its notice dated 10th November
2007 under the Securitization Act by causing pressure on the company through the
Guarantor to settle. This if allowed to proceed would be most unfair and would
represent a tacit approval to the bank to cause us further damage which would be
irreparable if not stopped in time.
An Executive response, overdue, is requested to the situation. We believe that the
Governor would be fair and request timely attention.
Thank you
For Whitefield Cottons P Limited
Sivasubramanian Muthusamy
Managing Director
(A signed copy of this electronic PDF document is separately mailed)
Erode
November 27, 2007.
Annexures follow, some of which pasted as files from electronic storage , rather than
embedded as scanned documents, to enable highlighting .
Whitefield Cottons P Limited
1029 E V N Road
Erode 638009
TN India
Tel (91) 424 262285 / 269115 / 269853 / 4 / 5
Fax (91) 424 264604
E-mail: cotton@vsnl.com
The Manager
Federal Bank Limited
Erode
Sir,
We are sending a shipment of 1 x 40 container load of cotton terry towels

(barmops) to Canada vide L/C NO IMDC/TOR/317070. A faxed copy of
the tested message along with the instruction for amendment is enclosed.
The orders on hand amount to US $ 803,750 amounting to Rs. 3.45 crores,

of which as per schedule we are to complete shipements over US $ 534578
amounting to Rs. 2.3 crores is to be shipped so as to ARRIVE IN
MONTREAL by May 15. So all these shipments amounting to Rs 2.3 crores
have to LEAVE by March 30.
With the 60 Lakhs of PCL available to us it is difficult to meet the peak

period requirement for yarn purchases and weaving and processing wages
during the next 120 days ( until March 30 ). We require a temporary
enhancement for this period.
1. In the meantime, we request the Manager to allow us to repay the PCL
with the export proceeds of the shipment leaving today and draw fresh
PCL without any difficulty. At present we utilize our entire limit of Rs
60 lakhs against order (L/Cs are received at the time of shipment). We
request the Manager to continue the status quo and allow us to utilize the
entire PCL against order (eventually the shipment is made against L/Cs
only. But there is a stipulation that Rs 50 lakhs may be availed against
order and the remaining Rs 10 laksh against production of the L/C
document. L/C is released by our Buyer at the time of shipment and even
this takes a long time to reach the Bank as explained to the Bank several
times before. Even the present L/C NO IMDC /TOR/317070 has not
been received even though the telex was sent to SBI Bombay on 18 11
99. Considering these difficulties we request the Branch to modify the
condition and in the meantime maintain the status quo and allow us to
utilize the PCL in full.
2. Also, please clarify if we can repay PCL out of the proceeds of a sale of
a DEPB certificate that we are to receive as Export benefit for the
exports done already.
Thank you.
Sincerely,

M.Sivasubramanian
Erode
Friday, November 26, 1999
Nov 26, 1999
Send by Registered post
This reply has already been send by Email from cotton(cotton @ vsnl.com)
To:federd@md4.vsnl.net.in
Cc:mds@federalbank.co.in
Sent : Monday,November 05 2001 11.25 AM
Subject : Your letter dated 23.10.2001 to Whitefield Cottons (P) Limited and its Directors
REGISTERED POST WITH ACKNOWLEDGEMENT DUE
To
The Senior Manager,

Federal Bank Limited,
Erode – 638 001.
Sir,
Sub : Your letter dated 23.10.2001 to Whitefield Cottons (P) Limited and its Directors.
This is in response to your letter dated 23/10/2001 by Registered Post addressed to the
company and the directors separately received here on 29/10/2001.
Due to the economic slowdown following the September 11 incident and the war, the
export orders expected did not materialise. As our limit remains frozen at Rs.80 lakhs for
the past one year, we are unable to make commitments for new products which require
funds to manufacture. We request the bank to take up our request to review our
requirements pending with the bank for a long time. As the focus of the bank is on the
8.30 lakhs arrears, we have been trying to mobilise external funds to service this
arrears, but we were met with difficulty in this regard as well . So on the one hand our
operations are limited by want of funds and on the other hand we have been having
difficulty raising funds from external sources. We have marked a property for sale,
which will raise the required funds to clear the arrears and we request the bank to allow
us a time frame of 6 weeks to clear the arrears, while we again request the bank to
review how non- availability of funds restrict our progess.
We request the bank to help us get established despite the temporary set backs that we
are facing and enable us to make further progress for which, the company has all non-
financial resources required.
Thank you
M.Sivasubramanian
Uma Maheswari Sivasubramanian
Whitefield Cottons (P) Limited
No.389/2, Perundurai Road,
Erode – 638 0011
Tel ++ 91 424 269853/54/262285
Email cotton@ vsnl.com
Cotton@whitefield cotton.net
December 10, 2001
Mr. K P Padmakumar
Chairman
Head Office
Aluva 683 101
Dear Sir,
Sub: Our Packing Credit Limit with your Erode Branch brought to the Chairman's attention for
various reasons.
This note is addressed to the Chairman of the Bank on spefic banking problems that require the
Chairman's direct attention with a request for interventional directives from the Chair.
Whitefield Cottons is a private limited company established in the year 1995, originally with the
object of setting up an export oriented shuttleless weaving unit. The company is a closely held
private limited company with two Directors, one of whom (Sivasubramanian Muthusamy) is a
Business Management Graduate (MBA) and another (Dr Umamaheswari Sivasubramanian) is a
practicing Family Medical Physician. Even before the weaving project is given shape, the company
began exporting cotton terry towels and made ups, well ahead of its manufacturing project which is
still not commissioned as envisaged for various reasons.
This is a company with very promising and certain growth prospects limited only by want of fair
credit facilities from Federal Bank where the company has been banking since 1995 with a Packing
Credit Limit at Erode that remains frozen at Rs 80 lakhs since year 2000.
It is important for us to introduce our company and its prospects in its right perspective so as to
enable the Chairman to gain a complete perspective of the company's certain prospects that are
being limited. As an introduction we request the chairman to view our website at
http://www.whitefieldcotton.net, effectively set up, and professionally indexed by the major search
engines. The website is hosted by one of world's top most ecom business web services based in the
United States. The company is now e-commerce capable and is standing by for the required
facilities from the bank to become one of the first Indian textile companies to sell direct world wide
its products with its own brand name.
The product line began as a mass produced industrial towel and expanded into terry utility towels
to include luxury bath towels, bath robes and high end fabrics and made ups at present.
Apart from its impressive electronic commerce prospects, the volume of direct business that the
company could generate would sound too ambitious to state in this communication, but at least it
can be said that the company can generate more than enough export orders from the right buyers.
The Director of the company's business travels during the last five years included destinations in
USA, Canada, South America, almost all of Europe and some African countries. The Director
travelled either as a member of an official Trade Delegation from the Export Promotion Council
(once to Africa and once to South America) or as independant business visits to meet with Buyers in
USA, Canada or Europe. As a result the company regularly receives enquiries from companies as
varied as US textile giants with business volumes of over a billion dollars to smaller importers in USA
and elsewhere whose imports are under a million dollars.
It is rare for a company to have strengths both on the marketing and on the technical front. The
company is technically gifted, in the sense that the Director has systematically learned the technical
aspects of its products as also the technical aspects of plant design and the manufacturing
processes complete with a vivid evaluator's understanding of the required machines, the machinery
capabilities, the machinery functions and their individual investment effectiveness- not only in
Weaving but also in Yarn Spinning, Fabric processing and Finished Product manufacturing.
The company has a Packing Credit Limit of Rs 80 Lakhs, well short of its requirement, secured by
collaterals actually valuable well in excess of the limits sanctioned, personal guarantees by the
Directors and an additional guarantee by one of the family members, whose property is pledged as
collaterals. The company has had an impeccable performance and operational record at the Branch,
except for a problem at present which requires the Chairman's attention.
We had no infrasturcture at all till early 1999, and we had the products woven, whitened, stitched
and baled by subcontractors in various locations. In this style of operation, there were problems
related to quality, delivery time, cost over-run, logistics and administrative control, which included
the issue of pilferage. More importantly, our buyer started insisting on inhouse manufacturing
facilities as most experienced buyers do prefer.
So in 1999, as first phase, we invested all our DEPB and Drawback gains in land and buildings and
plant and machinery, which has now given us a PART of the infrastructure required, to be improved
upon:
·Land 1.64 acres of prime, developed industrial land in a prominent location: We bought
1.64 acres of land in Sipcot Industrial Area, which comprises 2000 acres of modern and
complete industrial infrastructure particularly suitable for Textiles, located 25 kilometers
from Erode city center on a major national highway. Rs 8 lakhs paid up and approximately
Rs 2 lakhs remains to be paid.
·Used Japanese Terry Weaving Machines: We bought 28 imported second hand Japanese
terry weaving machines. All these machines are in good working condition and comissioned
22 machines immediately in rented premises. The rest 6 machines are kept as reserve to
meet additional capacity requirements. The value of investment is Rs 15 lakhs
approximately.
·Supporting Machinery: We also bought a secondhand baling machine, a 40 KVA geneator
and weft yarn twisting machines required for the weaving unit. These equipments cost us Rs
4 lakhs.
·Tailoring Machinery: We acquired 6 powered straight line sewing machines and 18
powered overlock machines. The investment is about Rs 1.5 lakhs.
·Factory Building: A factory building admeasuring 5000 sq.ft. was constructed in a land
situated in a prominent place, leased from the Director's family. The cost of the building is
about Rs 22 lakhs.
·Office Building: Office infrastructure was greatly improved with a newly constructed
building of land area 1264 square feet situated in a prime area in central erode. The cost of
the building is about Rs 12 lakhs.
All these infrastructure facilities of value about Rs 62.5 lakhs were built up with out availing any
term loan as during the period from 1996-97 to 2001 we received DPEB benefits to the tune of
Rs.45.44 lakhs and by utilising a portion of the profits generated.
At this point of time we had a sanctioned term loan limit from Sipcot for Rs 1.5 crores for which the
upfront fee of Rs 1.5 lakhs was paid, collaterals pledged, charges created and registered with the
Registrar of Companies but the loan was not disbursed, one of the major reasons being the absence
of a positve reference from Federal Bank which would neither approve of the term loan from
another instituion nor would offer the required facilities itself. However the infrastructure created
was in line with our original objective of creating a manufacturing facility and it also qualified as
margin money brought in from our end towards the project cost, making us even more eligible to
avail the term loan.
From Sipcot we could not avail the sanctioned term loan till it transferred all its project finance to
its sister instituion TIIC. Eventually we had approcached IDBI, and later the TIIC, and by now our
production requirement as also our increased expertise included textile processing in addition to
weaving. We were encouraged by Government's Technology Upgradation Scheme (TUF) for which
we were qualified in all respects for a Term Loan of Rs 5 crores at about 10% per annum with a re-
payment period of 7 - 10 years and though there was overwhelming initial response at the
instituion's highest levels at project presentation both the institutions eventually slowed down due
to unknown reasons.
The export credit facilities with Federal Bank, Erode branch was a PCL of Rs 15 lakhs and an FUBP
limit of Rs 20 lakhs in 1996 which now remains as a PCL of Rs 80 lakhs (fully utilised) and an FUBP
limit of Rs 105 lakhs (all negotiated bills are collected and there are no FUBP outstandings).
With virtually no production infrastructure due to delay in availing term loan facilities, exports
progressed and we performed very well during the first 5 years.The figures are as below:
(Rs. In Lakhs)
Year Export Sales Profit
1996-97 37.38 2.55
1997-98 150.42 9.75
1998-99 200.27 19.03
1999-00 141.14 26.41
2000-01 113.50 3.12
The business came down since year 2000 due to the following reasons:
We have been shipping our products since 1996 to one company, Fonora Textiles inc., Montreal. We
considered it important not to take up excessive commitments before we establish full-fledged,
integrated manufacturing facilities. Fonora Textiles has been buying our products in suitably large
volumes, and most of our transactions valued at over Rs.1.5 million during the last 4 years were
from this company.
The company has been a comfortable buyer to work with and it has been very safe to transact
business with this company, but the ordering pattern right from the biginning was prone to
seasonalities - about 6 months of voluminous offtake and 6 months of comparatively inactivity.
The ordering pattern was taken up during a visit by the director of Fonora to visit our company in
India in October1999, as a result the ordering pattern was streamlined and made more voluminous
and well scheduled.
Fonora Textiles placed a bulk order amounting to Rs. 3.43 crores in November 1999, all to be
Letters of Credit transactions. The schedule of shipments was to start in December 1999 to
complete the about 65% of the total volume by February 2000. The export credit enjoyed by us at
that time from the bank was PCL Rs.60 lakhs and FUBP Rs. 90 lakhs. These limits were quite
insufficient to execute this order, of which exports of about 2.4 crores were to be effected with in
the next 90 days as peak requirements. Therefore, we approached the bank with a proposal
enhancement of PCL limit to Rs. 1.20 crores. However, the bank did not consider the term loan
proposal and sanctioned only enhancement of PCL limit to Rs.80 lakhs.
In the absence of timely response from the Erode Branch, we still took efforts to meet our export
commitments by availing market credit for raw material purchases and services, which turned out to
be disproportionately expensive and at the same time constrained the quality. Market Credit instead
of fair Bank facilites was at an unfair price, at an unfair interst for an unfair quality on unfair terms.
Worse, the measures at such a high expense were not enough to fulfil all our export commitments
on time.
Though we could not keep up the schedule initailly given, the buyer was so kind and considerate
that he rescheduled the shipments by extending the delivery period. However, we could not meet
this even this revised and lightened schedule, as our limits remained emphatically fixed at Rs 80
lakhs without even a marginal flexiblity. Whatever funds we were having had been invested in the
fixed assets and we could not raise any finance from own sources.
We had submitted the proposal for enhancement in November 1999, but the bank sanctioned the
enhancement only in August 2000. By the time the entire order became stale and we could not ship
any consignment and the order was cancelled, since the importing company had to buy from other
suppliers to meet their requirement.
Cancellation of orders had its own multiplier effect. The damage to the company did not stop with
reduction in its turn-over and anticipated export profits. The various sub contract units entrusted
with weaving, processing and tailoring job works started the work but we could not effect the
payment towards their labour charges, again for want of adequate funds. When the PCL of 80 lakhs
was sanctioned and disbursed, it was so late and so insufficient that it was just sufficient to meet our
commitments to the yarn suppliers and we could not take back the stock lying with the processing
units due to paucity of funds. ( In business, in practice, quite contrary to what the theory says, in a
situation where the requirement of funds amounts to, say, a hundred thousand - required TODAY-
and against this requirement if fifty thousand is made available a month too late, the problem does
not get halved, the problem remains as it was, perhaps more intensified because what is made
available too late disappears due to problems accumulated for want of timely response.) Therefore,
we incurred heavy loss by way of stocks lying with the processing units which has now become
unusable. Whatever stock could be saved, we recovered and are goods are under process.
Faced with the problems concerning non-availablility of a sanctioned term loan, severely restricted
export credit facilities which remain frozen at Rs 80 lakhs and a total absence of condusiveness to
avail alternate / additional credit facilites, we were unable to perform. There were specific
opportunties to have our Export Credit Limits more than doubled by other banks which back-
tracked due to resistence from Federal Bank.
The end result is our inablity to take up any of the several valuable propositions to import from our
company. We require to be in a position to fund the required production before we commit to
export. What we have taken up at the moment are local merchant export commitments totalling Rs
7 lakhs for high value terry towels, while we are unable to commit for voluminous and valuable
exports.
The bank had considerable role in building up the situation to the present level. There was no
timely advice from the part of the bank at any moment of time. There was no effort to understand
our financial position and estimate our financial requirements in a realistic manner inspite of our
repeated plea for 'a comprehensive reivew of our requirements'. The bank reacts to our recent non-
performance entirely by its excessive focus on its own security of the funds advanced. The advances
are more than well secured: the credit limits sanctioned to us are well secured with adequate
collaterals; besides, the bank also holds the guarantees from both the directors and one of the
family member of the directors. Therefore, there is no need for any alarm by the bank at this stage.
The bank's concerns are restricted to its narrow perspective of our short term difficulties with total
silence on its own role in crippling our ability to perform. This is not fair.
Earlier we had a practice of approaching the Regional Office or Head Office direct to represent our
problems which was stopped as we had to heed the sentiments of the previous branch
management. Even as our company was performing excellently during the first few years we had
had our share of problems at the Branch and we did understand that there was a review by the
Head Office and changes were effective at the Branch level. The present branch management has
been considerably more businesslike, but paradoxically, these branch level changes have created
excessive caution as far as this Branch was concerned and even the fact that our account happens to
be at the Erode branch might have affected our banking opportunities.
Even now, the bank is not considering certain ways of reviving the unit making it a viable, profitable
high performance in the pattern of its earlier growth trend until the unit faced its export credit
problem.
We have now sought the assistance of a financial consultant and he is working on a comprehensive
plan.
We are faced with two distinct problems: one is export performance for which we have substantial
potential and avenues unexploited for want of funds. We can immediately start export of cotton
yarn, which is less profitable but can boost our performance immediately. We had asked for a
supportive commitment from the Branch to enable immediate yarn exports and the Branch has so
far not committed on this. If the bank had enabled yarn exports we would have considrably brought
down the over due PCLs to recently drawn PCLs. We require support facilities from the bank to
enable us to take up yarn exports which can be an effective solution to the problem of overdue
PCLs. If the bank could make a more comprehensive assessment of our Export Credit Needs with
particular attention to the hardships we endured in the absence of timely assessment, we can
commit to ship Terry Towels and other woven and made up products in large volumes as also begin
selling direct to consumers on the internet by activating the built in e-commerce features at our
website with one of the world's top ecom business web serices, already on the internet
( http://www.whitefieldcotton.net ). We once again request the Chairman to see this website.
The other problem is that interest on PCL is overdue in our account for the first time in 6 years, to
the tune of Rs 8.10 lakhs. As advised by our Financial Consultant, we are now focussed on the task
of clearing the whole accumulated interest. While it is difficult to fund for even a very minimal level
of activity and all other overheads, we are faced with this interest overdue. The the Branch is
categorical in its ruling that the interest has to be serviced before we can discuss any of our
problems, which we agreed to abide by. We offered to sell one of our family properties to meet
with this commitment and the bank urges us to do this. We have made arrangements to sell a
property now set aside for the purpose one of family property to bring in additional funds and we
are making progress on this front. However this process will take at least one more month as there
is a delay in reaching an agreement on the price for the land to be sold. We assure you that we
would be clearing all the arrears in interest within one month, once the sale proceeds of our
property is received.
The Branch now threatens to issue us a recall notice. If the bank proceeds with the recall course it
will only help to kill a promising industrial unit which has been contributing to the nation's export
pursuits. We submit that it is unfair to throttle life out of our promising industrial enterprise which
can produce certain and significant results.
We are now looking forward to the Chairman's attention, assistance, guidance and support to make
this unit realize its promising potential. The recent export policy of the government of India has
identified textile export as one of the potential area for development and has announced various
concessions and benefits to improve the export performance in the textile sector. The recent report
reveals that the textile export is on a growth path and there is wide scope for further enhancement
of this trend.
We therefore, request you to consider the following facilities to us:
·We expect the sale of our property to take one month. Please allow us one month’s time
to clear the interest arrears.
·We wish to take up yarn exports which would boost our export performance. Please
sanction us a back to back inland LC facility to procure yarn and export.
·We wish to be in a position to commit to produce and export terry towels, fabrics and
other made ups. If are to make export commitments, we should be in a position to avail
additional Packing Credits from the bank. Please examine our requirements in this regard.
·We are now even more determined to proceed with our manufacturing project. Even
before we approached SIPCOT we did try to obtain the term loan facilities from Federal
Bank in 1997. We had asked for a Term Loan denominated in Foreign Currency and the
Head Office turned down with the observation that the Bank's exposure to foreign currency
is limited to a maximum period of 3 years. The Head Office did not offer us alternatives
such as a Rupee Term Loan. At present, in order to carry on the production, we needed
some balancing equipments. We now request the bank to extend term loan assistance to
build up inhouse processing facilities. If this is not possible we request the Bank to grant us
minimal term loan facilites that we require immediately to balance our present
manufacturing facilites. We are ready to offer additonal collateral securities to cover this
limit.
·Eventually we are to go ahead with our plans for a shuttleless weaving and soft flow
processing unit. If the bank would prefer not to fund this expansion, we emphatically
submit to the Bank to at least allow us to avail the required project finance from any term
lending institution like SIDBI or IDBI. The bank has so far been unfavourable to this
proposal and we were unable to make progress with our applications to the institutions due
to this reason.
The success of any industrial unit depends upon the financial partnership also. If the banks do not
understand the industrial enterprise's financial needs and extend timely help, even the most
promising industrial units can not survive. We therefore, humbly request you to look into our
request favourably and extend your support and guidance to turn this unit into one of the best
textile manufacturing unit in South India. Should we get an opportunity, we are ready to make
personal presentation about our comprehensive plan personally to you.
We look forward to a broader assessment and a positive response from you. Despite all the
problems as pointed out above, the fact remains that it is Federal Bank that sanctioned limits to us
to begin our existence as an export company. We are grateful to you for this original assistance and
we still believe that a clear understanding of our requirements by the Chairman would enable us to
emerge as one of the best performing textile companies.
With warm regards,
Yours truly,
M Sivasubramnaian.
Director
Whitefield Cotton (P) Limited
To: padmakumar@federalbank.co.in From: cotton <cotton@whitefieldcotton.net>
Subject: reminder to our request for Chairman's Intervention
29 Dec 2001 1.20 am
Erode,
December 26, 2001
Mr K. P. Padmakumar,
Chairman
Federal Bank
Head Office
Aluva.
Dear Sir,
This is in reference to our request to the Chairman to review our continuing banking problems with
the Erode Branch of the Bank, sent by letter during the second week of December. While we have
not received a response from the Chairman, the Branch had subsequently sent a Recall notice
allowing us a month to repay the PCL loan, which essentially requires a review for fair
enhancement.
Copy of the request to the Chairman has not been marked to the Branch Manager, but it was a
coincidence that the Branch sent us a letter after we made our request to the Chairman. However
we understand that this letter from the Branch was sent to us in the absence of the Senior
Manager who upon return assured us that this was a 'routine' communication. Based on this
development, we have refrained from responding to the letter from the Branch in legal parlance.
We are hopeful that the Chairman is considering our request for a comprehensive review of the
inadequacy of the facilities extended to us with special attention to how the absence of timely
response from the bank has upset our progress and delays our recovery.
We repeat our request for an appointment to meet the Chairman to represent our difficulties in
person.
In the meantime we would like to assure the Chairman that we are making all efforts to sell a
family property to bring in additional capital to regularize the overdue interest of Rs 8.10 lakhs. On
the performance front, we have begun producing a higher range of printed luxury beach towels,
which are to be exported through a Merchant Exporter and the orders to be executed by January
are of value Rs 8 lakhs. Repeat orders in larger volumes, part of which would be in the form of
direct export orders are expected on completion of this trial order.
We have also been invited to have an international marketing partnership with an American firm
with its own production base and several years of marketing experience. Our web site at Microsoft
Bcentral is also being continuously improved with better search engine listings and clarity of
presentation, and we are beginning to receive active positive enquiries through Internet from
major importers.
With our account at the Branch still frozen, we are servicing the orders on hand for new products
with difficulty and we request the Chairman to attend to our request to enable us to be responsive
to our opportunities as also to ensure that our progress is no longer delayed.
Thank you.
Sincerely,
Shiva Muthusamy
Director.
Whitefield Cottons P Limited 389/2 Perundurai Road Erode 638011 India Tel: ++91 424 269853 / 54 / 262285
January 23, 2002
To
The Chairman,
The Federal Bank Limited,
Head Office,
Alwva.
Dear Sir,
Sub : Our request for a comprehensive review of our account with your Erode
branch, submitted during the second week of December still awaiting your
response.
Ref : Our letter to the chairman dated 10/12/2001 sent on 10/12/2001 through
DHL
Courier
A copy of the communication sent to the senior manager of Erode branch is

forwarded herewith to update you with the present status of our constraints.
Thankyou,
Yours Sincerely,
for Whitefield Cottons P Limited,
Director.
January 23, 2002
To
The Senior Manager,

The Federal Bank Limited,
Nethaji Road,
Erode – 638 001.
Dear Sir,
Sub: Whitefield cottons P Limited export performance amidst present financial

constraints.
As shown in our email FEDERD@ MD4.VSNL.NET.IN, we are making an

export of cotton terry wash cloth a new product, in a trial order quantity of 500
kilo grams to Sri Lanka through our agent at coimbatore, following which
confirmation for larger orders are to be received. Also work is in progress for an
order for yarn dyed terry beach towels of order value Rs.3.20 lakhs, which would
be a deemed export transaction. The production is to be completed in 4-5
weeks. Fonora Textiles, Canada our buyer has sent us his present requirements
with some changes in product quality etc.. A part from this we are waiting for
bank’s response to review our account for our actual credit needs before we can
respond positively to several advanced enquires for export of our products to
north America, Eruope and other countries. We urge the bank to
COMPREHENSIVELY review our account in the light of the orders and enquires
that are unable to entertain as also in the light of the progress that we have
made in terms of effective, professional web presence vide
www.whitefieldcotton.net.
The trial shipment of 500 kilograms has been despatched to our shipping
agency M/S.St.Johns freight systems, Tuticorin and after the documentation
formalities at Tuticorin, we expect to receive the documents by this weekend. We
will present he documents for negotiation and the proceeds may please be
adjusted against the oldest PCL and the same day we will draw a fresh PCL and
issue a cheque for the entire amount eligible towards part-payment of
outstanding interest.
We continue to make efforts to sell either one of our Director’s/

Guarantor’s properties at Erode / Theni but there are still delays in reaching an
acceptable and reasonable agreement on price. We hope to resolve this task
very soon and pay the remaining portion of the outstanding interest, which now
remain as the bank’s only focus.
In the meantime we once again submit that our progress is financially

crippled because our limits remain frozen at Rs.80 lakhs.
Thank you,
Yours Sincerely,
for Whitefield Cottons P Limited,
Director.
Encl : copy of invoices for the trial shippment to M/s.Tharanga Textiles Limited,
SriLanka.
March 11, 2002.
To
The General Manager,

Reserve Bank of India,
Industrial and Export Credit Department,
Chennai
Sir,
Sub: Our Export Credit Limit with the Erode Branch of Federal Bank Limited.
Whitefield Cottons is a private limited company established in the year 1995, originally
with the object of setting up an export oriented shuttleless weaving unit. The company is
a closely held private limited company with two Directors, one of whom (Sivasubramanian
Muthusamy) is a Business Management Graduate (MBA) and another (Dr Umamaheswari
Sivasubramanian) is a practicing Family Medical Physician. Even before the weaving
project is given shape, the company began exporting cotton terry towels and made ups,
well ahead of its manufacturing project which is still not commissioned as envisaged for
various reasons.
This is a company with very promising and certain growth prospects limited only by want
of fair credit facilities from Federal Bank where the company has been banking since 1995
with a Packing Credit Limit at Erode that remains frozen at Rs 80 lakhs since year 2000.
Detailed Executive Summary:
It is important for us to introduce our company and its prospects in its right perspective
so as to present a complete perspective of the company's certain prospects that are being
limited. A fair introduction would be to request to view our website at
http://www.whitefieldcotton.net, effectively set up, and professionally indexed by the
major search engines. The website is hosted by one of world's top most e-commerce
business web services based in the United States. The company is now e-commerce
capable and is standing by for the required facilities from the bank to become one of the
first Indian textile companies to sell direct world wide its products with its own brand
name.
The product line began as a mass-produced industrial towel and expanded into terry
utility towels to include luxury bath towels, bathrobes and high end fabrics and made ups
at present.
Apart from its impressive electronic commerce prospects, the volume of direct business
that the company could generate would sound too ambitious to state in this
communication, but at least it can be said that the company can generate more than
enough export orders from the right buyers. The Director of the company's business
travels during the last five years included destinations in USA, Canada, South America,
almost all of Europe and some African countries. The Director traveled either as a
member of an official Trade Delegation from the Export Promotion Council (once to
Africa and once to South America) or on independent business visits to meet with Buyers
in USA, Canada or Europe. As a result the company regularly receives enquiries from
companies as varied as US textile giants with business volumes of over a billion dollars to
smaller importers in USA and elsewhere whose imports are under a million dollars.
It is rare for a company to have strengths both on the marketing and on the technical
front. The company is technically gifted, in the sense that the Director has systematically
learned the technical aspects of its products as also the technical aspects of plant design
and the manufacturing processes complete with a vivid evaluator's understanding of the
required machines, the machinery capabilities, the machinery functions and their
individual investment effectiveness- not only in Weaving but also in Yarn Spinning, Fabric
processing and Finished Product manufacturing.
The company has a Packing Credit Limit of Rs 80 Lakhs, well short of its requirement,
secured by collaterals actually valuable well in excess of the limits sanctioned, personal
guarantees by the Directors and an additional guarantee by one of the family members,
whose property is pledged as collaterals. The company has had an impeccable
performance and operational record at the Branch, except for a problem at present,
which requires attention by the top management of the bank.
We had no infrastructure at all till early 1999, and we had the products woven, whitened,
stitched and baled by subcontractors in various locations. In this style of operation, there
were problems related to quality, delivery time, cost over-run, logistics and administrative
control, which included the issue of pilferage. More importantly, our buyer started
insisting on in-house manufacturing facilities, as most experienced buyers do prefer.
So in 1999, as first phase, we invested all our DEPB and Drawback gains in land and
buildings and plant and machinery, which has now given us a PART of the infrastructure
required, to be improved upon:
Land 1.64 acres of prime, developed industrial land in a prominent location: We

bought 1.64 acres of land in Sipcot Industrial Area, which comprises 2000 acres of
modern and complete industrial infrastructure particularly suitable for Textiles,
located 25 kilometers from Erode city center on a major national highway. Rs 8
lakhs paid up and approximately Rs 2 lakhs remains to be paid.
Used Japanese Terry Weaving Machines: We bought 28 imported second hand

Japanese terry-weaving machines. All these machines are in good working
condition and commissioned 22 machines immediately in rented premises. The
rest 6 machines are kept as reserve to meet additional capacity requirements. The
value of investment is Rs 15 lakhs approximately.
Supporting Machinery: We also bought a secondhand baling machine, a 40 KVA

generator and weft yarn twisting machines required for the weaving unit. These
equipments cost us Rs 4 lakhs.
Tailoring Machinery: We acquired 6 powered straight-line sewing machines and 18

powered over-lock machines. The investment is about Rs 1.5 lakhs.
Factory Building: A factory building admeasuring 5000 sq.feet was constructed in a

land situated in a prominent place, leased from the Director's family. The cost of
the building is about Rs 22 lakhs.
Office Building: Office infrastructure was greatly improved with a newly

constructed building of land area 1264 square feet situated in a prime area in
central erode. The cost of the building is about Rs 12 lakhs.
All these infrastructure facilities of value about Rs 62.5 lakhs were built up with out
availing any term loan as during the period from 1996-97 to 2001 we received DEPB
benefits to the tune of Rs.45.44 lakhs and by utilizing a portion of the profits generated.
At this point of time we had a sanctioned term loan limit from Sipcot for Rs 1.5 crores for
which the upfront fee of Rs 1.5 lakhs was paid, collaterals pledged, charges created and
registered with the Registrar of Companies but the loan was not disbursed, one of the
major reasons being the absence of a positive reference from Federal Bank which would
neither approve of the term loan from another institution nor would offer the required
facilities itself. However the infrastructure created was in line with our original objective
of creating a manufacturing facility and it also qualified as margin money brought in from
our end towards the project cost, making us even more eligible to avail the term loan.
From Sipcot we could not avail the sanctioned term loan till it transferred all its project
finance to its sister institution TIIC. Eventually we had approached IDBI, and later the TIIC,
and by now our production requirement as also our increased expertise included textile
processing in addition to weaving. We were encouraged by Government's Technology Up
gradation Scheme (TUF) for which we were qualified in all respects for a Term Loan of Rs
5 crores at about 10% per annum with a re-payment period of 7 - 10 years and though
there was overwhelming initial response at the institution's highest levels at project
presentation both the institutions eventually slowed down due to unknown reasons.
The export credit facilities with Federal Bank, Erode branch was a PCL of Rs 15 lakhs and
an FUBP limit of Rs 20 lakhs in 1996 that now remains as a PCL of Rs 80 lakhs (frozen) and
an FUBP limit of Rs 105 lakhs (all negotiated bills are collected and there are no FUBP
outstanding).
With virtually no production infrastructure due to delay in availing term loan facilities,
exports progressed and we performed very well during the first 5 years. The figures are as
below:
Year Export Sales Profit

1996-97 37.38 2.55
1997-98 150.42 9.75
1998-99 200.27 19.03
1999-00 141.14 26.41
2000-01 113.50 3.12
The business came down since year 2000 due to the following reasons:(Rs. In Lakhs)
We have been shipping our products since 1996 to one company, Fonora Textiles inc.,
Montreal. We considered it important not to take up excessive commitments before we
establish full-fledged, integrated manufacturing facilities. Fonora Textiles has been
buying our products in suitably large volumes, and most of our transactions valued at
over Rs.1.5 million during the last 4 years were from this company.
The company has been a comfortable buyer to work with and it has been very safe to
transact business with this company, but the ordering pattern right from the beginning
was prone to seasonality - about 6 months of voluminous off take and 6 months of
comparatively inactivity.
The ordering pattern was taken up during a visit by the director of Fonora to visit our
company in India in October1999; as a result the ordering pattern was streamlined and
made more voluminous and well scheduled.
Fonora Textiles placed a bulk order amounting to Rs. 3.43 crores in November 1999, all
to be Letters of Credit transactions. The schedule of shipments was to start in December
1999 with about 65% of the total volume to be completed by February 2000. The export
credit enjoyed by us at that time from the bank was PCL Rs.60 lakhs and FUBP Rs. 90
lakhs. These limits were quite insufficient to execute this order out of which exports of
about 2.4 crores were to be effected with in the next 90 days as peak requirements (the
abs ence of timel y response from the Bank ha s b een a chr onic
pr ob le m as chron ologically outlined in th e following section).
Therefore, we approached the bank with a proposal enhancement of PCL limit to
Rs. 1.20 crores. However, the bank did not consider the term loan proposal and
sanctioned only enhancement of PCL limit to Rs.80 lakhs.
In the absence of timely response from the Erode Branch, we still took efforts to meet our
export commitments by availing market credit for raw material purchases and services,
which turned out to be disproportionately expensive and at the same time constrained
the quality. Market Credit instead of fair Bank facilities was at an unfair price, at an unfair
interest for an unfair quality on unfair terms. Worse, the measures at such a high expense
were not enough to fulfill all our export commitments on time.
Though we could not keep up the schedule initially given, the buyer was so kind and
considerate that he rescheduled the shipments by extending the delivery period. However,
we could not meet even this revised and lightened schedule, as our limits remained
emphatically fixed at Rs 80 lakhs without even a marginal flexibility. Whatever funds we
were having had been invested in the fixed assets and we could not raise any finance from
own sources.
We had submitted the proposal for enhancement in November 1999, but the bank
sanctioned the enhancement only in August 2000. By that time the entire order became
stale and we could not ship any consignment and the order was cancelled, since the
importing company had to buy from other suppliers to meet their requirement.
Cancellation of orders had its own multiplier effect. The damage to the company did not
stop with reduction in its turnover and anticipated export profits. The various sub contract
units entrusted with weaving, processing and tailoring job works started the work but we
could not effect the payment towards their labor charges, again for want of adequate
funds. When the PCL of 80 lakhs was sanctioned and disbursed, it was so late and so
insufficient that it was just sufficient to meet our commitments to the yarn suppliers and
we could not take back the stock lying with the processing units due to paucity of funds.
(In bu sin ess, i n pra cti ce, q ui te con tra r y to wh at th e th eor y says, i n a
sit u ati on wh er e th e r eq u ir emen t of f u n ds amou n ts to, sa y, a h u n dr ed
th ou san d - re q u ir ed TODA Y- an d aga i ns t thi s r eq ui r emen t i f fi f ty
th ou san d is made avai la bl e a mon th too la te, th e pr obl em does n ot g et
h al v ed, th e pr obl em r emai n s as it was, per ha ps mor e in ten sif i ed becau se
w h at i s made av ail abl e too l at e dis appears du e to pr obl ems accu mu la ted
f or wan t of ti mel y re spon se. )
In the time that the Bank took to respond to and finally deny our requirements, we
incurred heavy loss by way of stocks lying with the processing units, which has now
become unusable. Whatever stock could be saved, we recovered and are goods being
processed.
Faced with the problems concerning non-availability of a sanctioned term loan, severely
restricted export credit facilities which remain frozen at Rs 80 lakhs and a total absence of
conduciveness to avail alternate / additional credit facilities, we were unable to perform.
There were specific opportunities to have our Export Credit Limits more than doubled by
other banks which back-tracked due to resistance from Federal Bank.
The end result is our inability to take up any of the several valuable propositions from
companies around the world to import from our company. We require being in a position
to fund the required production before we commit to export. What we have taken up at
the moment are local merchant export commitments, while we are unable to commit for
voluminous and valuable exports.
The bank had considerable role in building up the situation to the present level. There
was no timely advice from the part of the bank at any moment of time. There was no
effort to understand our financial position and estimate our financial requirements in a
realistic manner inspite of our repeated plea for 'a comprehensive review of our
requirements'. The bank reacts to our recent non-performance entirely by its excessive
focus on its own security of the funds advanced. The advances are more than well
secured: the credit limits sanctioned to us are well secured with adequate collaterals;
besides, the bank also holds the guarantees from both the directors and one of the family
member of the directors. Therefore, there is no need for any alarm by the bank at this
stage. The bank's concerns are restricted to its narrow perspective of our short-term
difficulties with total silence on its own role in crippling our ability to perform. This is not
fair.
Earlier we had a practice of approaching the Regional Office or Head Office direct to
represent our problems, which was stopped, as we had to heed the sentiments of the
previous branch management. Even as our company was performing excellently during
the first few years we had had our share of problems at the Branch and we did
understand that there was a review by the Head Office and changes were effected at the
Branch level. The present branch management has been considerably more businesslike,
but paradoxically, these branch level changes have created excessive caution as far as this
Branch was concerned and even the fact that our account happens to be at the problem –
prone Erode branch might have affected our banking opportunities.
Even now, the bank is not considering certain ways of reviving the unit making it a viable,
profitable high performing unit in the pattern of its earlier growth trend until the unit
faced its export credit problem.
We have now sought the assistance of a financial consultant and he is working on a

comprehensive plan.
We are faced with two distinct problems: one is export performance for which we have
substantial potential and avenues unexploited for want of funds. If the bank could make a
more comprehensive assessment of our Export Credit Needs with particular attention to
the hardships we endured in the absence of timely assessment, we can commit to ship
Terry Towels and other woven and made up products in large volumes as also begin
selling direct to consumers on the internet by activating the built in e-commerce features
at our website with one of the world's top e-com business web services, already online
(http://www.whitefieldcotton.net). Also,we can immediately start export of cotton yarn,
which is less profitable but can boost our performance immediately. We had asked for a
supportive commitment from the Branch to enable immediate yarn exports and the
Branch has so far not committed on this. If the bank had enabled yarn exports we would
have considerably brought down the over due PCLs to recently drawn PCLs. We require
support facilities from the bank to enable us to take up yarn exports, which can be an
effective solution to the problem of overdue PCLs.
The other problem is that interest on PCL is overdue in our account for the first time in 6
years, to the tune of Rs 8.10 lakhs. As advised by our Financial Consultant, we are now
focused on the task of clearing the whole accumulated interest. While it is difficult to
fund for even a very minimal level of activity and all other overheads, we are faced with
this interest overdue demand. The Branch is categorical in its ruling that the interest has
to be serviced before we can discuss any of our problems, which we agreed to abide by.
We offered to sell one of our family properties to meet with this commitment and the
bank unhesitantly urges us to do this. We have made arrangements to sell a property now
set aside for the purpose to bring in additional funds and we are making progress on this
front. However this process has taken longer than anticipated, as there is a delay in
reaching an agreement on the price for the land to be sold.
The details related to our requirement of funds and the bank's

response or the absence of it, in chronological order:
We incorporated this company in June 1995 with the object of establishing an export-
oriented, modern shuttleless weaving unit, to expand into an integrated textile-
manufacturing unit.
While the manufacturing project was in the process of being planned, an earlier
preliminary business travel resulted in an export order from Fonora Textiles, Canada
through a contact based in London.
The letter of credit was from the Bank of Montreal for US $ 57,400 for a shipment to be
sent within the next 6 weeks and with this document on hand to begin our exports, we
approached Federal Bank Limited on 08/03/1996. The Bank was responsive and by
15/03/1996 vide sanction order no.30374 a temporary, one time Packing credit Limit of
Rs.15 Lakhs as PCL (and Rs.20 Lakhs as FDBP) were sanctioned.
We have remained repeatedly expressive and thankful to the bank since then with the
understanding that it was possible to jump-start as an export business partly because of
the bank's responsiveness to the first opportunity that we had to export.
To secure this temporary Packing Credit Limit of Rs 15 lakhs, we had lodged a collateral
security of a building of area 1020 square feet in the central commercial area of Erode
and completed all documentation formalities. The formalities of confirming the temporary
limit as permanent extended till mid-may 1996 due to an error in interpretation of the
description and area of the collateral offered.
The actual area of the property was 1020 square feet, but was recorded by the Branch
Manager in his report sent as part of the application to the Regional office as 1000 square
feet. This was objectionable and in addition, the legal department at regional office found
reason to consider 159 square feet out of 1020 square feet to have an insufficient
property description. We presented a clarification relating to the description of our
property vide our letter to branch dt.15/05/1996, as also another legal opinion related to
this specific point. It was also represented in the same letter that the property offered was
several times as valuable as the value taken by the branch manager and it was requested
that a grade IV officer may be deputed to inspect and value the property. By this time
orders on hand and orders under negotiation increased, so the company requested by its
letter dated 15/5/96 enhancement of PCL to Rs.45 lakhs along with proposals for an ad
hoc, interim term loan of 6.89 lakhs for a tailoring unit which was not entertained. With
this request pending we had to offer an additional property of 6000 square feet, which
was conservatively valued by branch as a property of value Rs.59 Lakhs.
The branch had taken the property as additional collateral security instead of as a
substitute for very valuable and legitimate property of 1020 square feet. Which was
already lodged with the bank. We asked the first property of 1020 square feet to be
returned but the bank refused to do so. There was a verbal assurance given by the branch
that a comfortable value of collateral would enable the bank to sanction enhancements
required and other future requirements quickly.
After 9 weeks, the regional office made the temporary limit permanent, without
considering our request for enhancement, by its sanction order no.30398 SL.No.MDSR/PF
1149/gad/287/96 dated 22.5.96 as a non-priority advance. Eventually during November
1996 we submitted a proposal for installation of 12 Shuttleless weaving machines from
Switzerland made by Sulzer Ruti AG in two phases (6 machines in phase 1 and another 6
machines in phase II). In phase I we requested a term loan of 216.68 lakhs, out which
107.46 lakhs was requested as a US Dollar denominated term loan. The branch manager
sent us a query during Dec’96 seeking clarification relating to the net worth of the
company, net worth of the promoters etc.. All the particulars called for by the branch
were elaborately presented vide our note to the branch manager dated 22/12/1996.
Eventually the director of the company paid a visit to the Head Office at Aluva, Kerala to
meet with officers in foreign exchange department and further elaborated on the project
proposal. Subsequently on 31/12/1996 detailed financial workings were submitted
explaining debt service coverage ratio etc., but the bank eventually turned down the
proposal with simple observation that “ The banks exposure to foreign currency risks is
limited to 3 years”. This was the reason cited and the message was clear that the Bank was
not inclined to take up the proposal.
The PCL sanctioned remained at the same level until the middle of 1997 but the branch
imposed procedural restrictions even about availing the Rs.15 lakhs sanctioned to us.
On 27/04/1997 we had shown our workings to the bank that our PCL requirement was,
based on simple calculations, Rs.52.78 lakhs. Again on 20/06/1997 we submitted our
proposals for enhancement with detailed financial projections and workings to request for
PCL to be enhanced to Rs.45 lakhs (and FUBP limit to Rs.60 lakhs seeking a total of Rs.110
lakhs). The Assistant General Manager of the foreign exchange department of the Head
Office vide sanction order S.No.10616 (FEX 18-8/ PF 7087 dt.22/10/1997) sanctioned PCL
as Rs.25 lakhs including a sub-limit of PCL against orders not back by LC of Rs.15 lakhs
(and an FUBP Rs.45 lakhs giving us a total of Rs.70 lakhs as a overall limit).
It was pointed out by our letter-dated 05.11.1997 that the limit sanctioned was
insufficient. The orders to be executed with in the next 3 weeks amounted to Rs.40 lakhs
and apart from this the additional tentative shipping schedule for the next 7 weeks
amounted to Rs.37 lakhs. By the same letter we requested the bank to consider our
representation for enhancement to the level as requested to a PCL of Rs.45 lakhs (and
FUBP limit of Rs.60 lakhs). The branch also conveyed to the Regional Office that the
borrowers were not satisfied to the new limits sanctioned to them.
After 7 months the Regional Officer partially considered to our request vide sanction
letter MDSR/MLS/-/98/dated 15.06.1998 by temporary enhancing PCL to Rs.38 lakhs for a
period of 2 months and (FUBP/FDBP limit to Rs.60 lakhs for a period of 3 months). We
explained the nature of our requirements once again drawing attention to the fact
that our original requirements to enhance the PCL to Rs.75 lakhs (and FUBP
proportionately).
After repeated representation the Regional Office on 10/11/1998revalidated the

temporary limit again as a temporary limit without further enhancement and revalidation
was to be valid up to 31/01/1999. In the mean time the conditions stated in sanction
orders were to be complied with.
By our letter dated 03/11/1998 we submitted that we had achieved 2 times (200%) of the
turnover projected after obtaining the temporary limits. It was shown that orders on hand
for the next 6 weeks amounted to US $ 150,000 and order of approximate value US $
500,000 were expected to the confirmed for the next 6 months. Stating that our
requirement for funds were on the order of Rs.75 lakhs as PCL we requested the Regional
Manager to at least revalidate the temporary PCL and FUBP sanction immediately.
It was very clearly stated that the current level of Rs.38 lakhs of the PCL was too
insufficient to process even half the orders on hand. It was emphatically stated as follows:
“ Unless the desired levels of credit limits are [not] sanctioned immediately, it
may not be possible to implement the orders on hand and maintain the
reputation so for created by us with our Buyers. This note may please be
treated as extremely urgent.”
Until Dec 1998, our performance, with all these banking constraints was as follows:
1996-97 US$ 106,600

1997-98 US$ 361,852
1998 (Apr-Dec) US$ 395,850 (for 1998-99 the total was US$ 473,476)
Ach ie va bl e Expor t Sal es f or th e f oll o wi n g 1 2 mon th s was esti mated wi th a

basi s as US $ 9 00, 000 , bu t th e ba n k di d n ot make th e f u n ds ava il ab l e on
ti me.
We pressed for a limit of Rs 75 lakhs as originally requested, and the Bank sanctioned Rs
45 lakhs during December 1998, which we refused to accept.
Orders on hand for the next 6 months amounted to US $ 340,525/= .The Buyer during a
visit by the Director to Canada had indicated an off-take of as much US $ 700000. This
together with definite prospects of exports to Argentina, Brazil and USA were discussions
were held with important Buyers during the Buyer-Seller meets led by the Additional
Textile Commissioner who was also the Executive Director of the Export Promotion
Council.
All this was stated in our communication dated February 3 1999 and it was emphasized
that "in terms of direct face to face contacts the company had as many as 200 [ short-
listed ] Buyers to work with" which was enough of a base to build up an “Export House”
The cycle time and profitability issues were presented and elaborate workings were shown
to press for a PC limit of Rs.75 lakhs (and an FUBP limit of Rs.110 lakhs).
Attention was drawn to the procedural problems experienced at the branch and the bank
was requested to minimize procedural difficulties and make the PCL and FUBP limits
flexible. Required papers and working were submitted along with.
[By this time, in the absence of term loan support, the company had built up an in house
tailoring unit, an electric baling machine, office assets as also built up a prime office
building, a factory building and had also acquired 28 shuttle weaving machines to weave
terry fabric].
The director met with the Assistant General Manager at Chennai on 9th March 1999, and
on the following day a letter was sent on 10th March 1999. One of the Bank’s concerns at
this point of time was that the company had obtained a sanction from SIPCOT for a Term
Loan of Rs.150 lakhs. The details of the sanction were presented in the letter dated 10th
March 1999.
It was clarified that the collateral security lodged with SIPCOT was different from the
security offered to Federal Bank. It was also explained that the term loan was not availed.
Attention was also drawn to the fact that the term loan sanction from SIPCOT was for the
very project proposal that Federal Bank did not entertain. Following this meeting the
bank insisted on an assurance that we will not avail the sanctioned term loan from SIPCOT
without the approval of Federal Bank. So on 26/03/1999 an undertaking of seven points as
suggested by the bank including "We hereby undertake to “inform” M/S. Federal Bank
Limited before availing the above said term loan by M/S. SIPCOT limited, Chennai."
The undertaking was enforced on us even after it was clearly shown that we had already
qualified for the term loan and that the source of additional promoter’s contribution was
external to the current sources and that the collateral security offered was a different
property as distinct from the collateral security offered to Federal Bank, for the existing
Rs.38 lakhs limit.
After all these assurances that the bank was awaiting for, Rs.60 lakhs as PCL was
sanctioned (and a FDBP / FUBP limit - the bank never allowed us to do business on non
L/C terms- of Rs.75 lakhs), vide sanction order no.00097 /MDSR
/PF/1353/FEX/69/99 dated 30/03/1999.
Out of the Rs.60 lakhs the bank required the actual L/C document on hand to avail Rs.10
lakhs out of Rs.60 lakhs, which rendered the sanction effectively as a sanction of Rs.50
lakhs with procedural strings attached to the remaining Rs.10 lakhs. In reality, all orders
that we accepted at that point of time were on L/C terms, but by practice L/C document
was never received before the actual time of shipment. (FDBP was to be granted, as per
the terms of the sanction against L/C / Orders and FUBP was to be granted against L/C
Only. FDBP / FUBP together amounted to Rs.75 lakhs but in practice the company was
never allowed to avail the FUBP sanction because the bank refused documents even when
there was proof that the L/C was in transit.)
Procedural formalities as usual delayed the usability of the sanction and even as on 5th
April we were submitting requirements for special permission to avail loans of amounts as
low as Rs.2 lakhs when the sanction was for Rs.60 lakhs, within the limit sanctioned.
With regard to the FDDP sanction the bank not only refused to encourage exports on non
L/C terms, but even with our existing buyer, even with an L/C on hand, the bank resorted
to treating the bills as eligible merely for the RABC facility.
RABC was a so-called facility by which the bank sent the bills for collection, without
treating the bills as purchased. RABC reduced the drawing power not only from the
FDDP/ FUBP limits, but also affected the drawing power of the PC Limits, to the extent of
the value of the bills treated under RABC.
A shipment of Rs.832, 986 was treated as RABC on march 3, 1999 and the branch chose to
“hold” the amount even as on May 5,1999 when we wrote to the AGM, also informing him
that the company had received confirmation that the Buyer cleared that goods and
accepted the documents as per terms of the L/C. It was pointed out that we also had an
ECGC limit of Rs.15 lakhs for our Buyer to meet contingencies like this transaction (ECGC
cover was insisted upon by the Bank - one cover for Export transaction risk with a 0.19%
premium paid directly by us even for secure L/c based transactions and another cover to
secure the Bank's PCL risks for which the Bank charged premium to our account as
remitted.)
The Rs.8.32 lakhs transaction It was actually an L/C transaction treated as a non L/C
transaction by the bank. Documents were mailed to the Bank of Montreal invoking the
terms of the Letter of Credit, but treated as RABC locally. After several meetings and
written communication we were allowed to avail the Rs.8.32 lakhs during the third week
of May 1999.
This sanction came not before we troubled our buyer to ask the Bank of Montreal to send
a telex message to Federal Bank stating that the payment was due on may 21, explicitly
stating “you may release reserve, if any”. (It has always been our responsibility to verify
the status of payments by the Bank of Montreal through our Buyer. The Bank seldom
followed up on the Bills negotiated.)
While our progress improved from US $ 106,600 in 1996-97 to US $ 473,476 in 1998-99 a

four-fold growth of performance in 3 years (in spite of all the banking problems) the
bank had:
· Refused to consider a promising proposal for creating manufacturing facilities

· Blocked us from utilizing a term loan of Rs.1.5 crores sanctioned by SIPCOT
· Took our 180 days to partially concede to our requirement as PCL of Rs.75 lakhs
· Took 700 days to fully sanction our requirement in full, by white time the sanction
was too little.
· Prevented us from moving to any other bank, which could have more responsive.
(On record the Bank blocked South Indian Bank from granting us a Packing Credit
and Cash Credit facility totaling Rs 160 lakhs during August 2000. Earlier State
Bank of India offered Rs 120 lakhs prima facie, but the following day there was a
complete overturn, and when pressed for a reason there was an inquisitive
discussion on our relationship with Federal Bank with a particular reference to the
Branch Manager who had been transferred.)
· IDBI, Coimbatore returned our detailed project proposals prepared in the required
format with elaborate workings seeking a Term Loan of Rs 5 crores verbally
assigning the reason that IDBI's experience with Terry Projects have been
unpleasant, all the Terry Projects taken up by IDBI, not only from Coimbatore, but
from around the country invariably failed. It is not known if Federal Bank had
offered a opinion to IDBI, Coimbatore.
The PCL request for our financially determined requirement of Rs 75 lakhs was originally
submitted on 22/09/1998. The bank by its sanction dated 30/3/99 sanctioned Rs.60 lakhs,
which by itself was not a clear useable limit. It further took disbursal delays. It was only on
23/08/2000 that the bank sanctioned limits as requested at Rs.80 lakhs (by which time we
had received a series of time-sensitive orders totaling Rs 3.43 crores, which pushed our
requirements to as much as Rs.160 lakhs of Packing Credit). The bank effectively took
approximately 700 days to respond to our requirement by which time we had lost several
orders for want of funds, lost our reputation for timely execution of order accepted,
incurred higher cost of production, incurred overheads non- productively and had our
growth prospects badly hurt. Enough and more damage was done to our finances by all
the time delays. Time delays by the bank in processing our requirements was the primary
reason why our shipments were delayed, and led to a slowdown in performance. The bank
did not acknowledge its own role in our reduced performance when it sent an advance
letter on 04/11/1999 that one of the packing credit loan amounting to Rs.3.75 lakhs
drawn on may, 18,1999 would fall “Overdue” as it would reach 180 days two weeks hence,
on 18/11/1999. (This was eventually closed on 3/12/99)
By October 1999:
· we had commissioned 22 out of 28 terry weaving machines and the machines

were operational.
· Our factory building for the tailoring unit of 5000 square feet was built up with 24
sewing machines and an electronic baling machine operational.
· Our buyer from Canada visited us at Erode and we discussed various aspects for a
week.
Our performance was ALL SET to leap up with orders placed on Nov 5, 1999 by our Buyer
alone amounting to US $ 803,750 (equal at the day's exchange rate to Rs 3.43 crores) to
be shipped out during January - October 2000 vide purchase order EA No.5133, 5134 and
EA 5135 confirming terms of payment as L/C 30 days. The orders were for 10 x 40'
container volumes of shop towels (3000 bales), 30240 units of 3 ply Diapers and 1,36,260
dozens of Terry Towels.
All of the orders placed were of revised specification, so goods were to the produced
afresh, and it required swift action. These records were immediately presented to the
bank and nothing happened for 3 weeks.
By our letter to the bank dated 26/11/1999 it was shown that Rs.2.3 crores out of Rs.3.4
crores worth of orders were to be shipped within the next 120 days.
As on this date our PCL still remained as Rs.60 lakhs with immense procedural difficulties
preventing us from availing even the Rs.60 lakhs sanctioned in full. To execute the orders
on hand of Rs.3.42 crores -out of which 2.4 crores worth of goods were to be shipped
with the next 120 days- we required sufficient limits ( our requirement was verbally
explained as a PCL of at least Rs.160 lakhs) to be made available, and we even proposed
that the limits be sanctioned as temporary limits, in order to make the bank feel
comfortable.
The bank was silent. Nothing happened until Jan 14, 2000 and the Buyer was alarmed by
the production delays (that resulted from the bank’s irresponsiveness). Eventually we
agreed for a reduction in the volume of goods ordered as follows:
Reduction in Quantities:
Terry Towels agreed as 93150 doz in place of 136,620 doz.
Shop towels agreed as 2040 bales in place of 3000 bales
Delivery Schedule :
Terry Towels: extended by 30 days.
Shop Towels: extended by 5 week
The Revised schedule was submitted to bank and on 29/02/2000 we pointed out that the
orders on hand far-exceeded the available limit of Rs.60 lakhs. Even at this time we were
making requests and special requests to make the Rs.60 lakhs fully available.
[While we were servicing our production requirements part by utilizing facilities in-house
and part by sub-contracting our production process, our infrastructure needs were
increasingly felt time and again it was pointed out to the bank that quality and cost
factors make it imperative that we build up in house facilities.
With the term loan from SIPCOT still unutilized, the company wished to make use of a
unique opportunity made possible by a special fund for Textile Industry
Modernization called TUF scheme announced by the government of India. By this scheme
Rs.25, 000 crores were made available for funding textile modernization. Longer
repayment periods at 5 % lower rate of interest and a highly encouraging funding
environment together constituted an opportunity for us to seek funding under TUF .Our
technical expertise and understanding of manufacturing technology and processes now
covered spinning, yarn dyeing, Fabric weaving, Terry Weaving, Fabric processing, tailoring
/ garment making.
By this time direct contacts were established due to participation in two separate trade
delegations - one to African countries and another to Latin American countries. The
Director of the company had also traveled to the United States, Canada and several
European countries three times and in all these destinations, businessmen in the same line
of business were met with, samples presented, requirements examined, discussions were
held on pricing and supply position. During these several visits it emerged that it was
essential and attractive to have full fledged manufacturing facilities in order to be
attractive as also be competitive and profitable. With a vendor-reliant operation, it was
proving extremely difficult for us to control quality parameters and delivery commitments
and more than a due share of profits were parted with. It became evident that our own
integrated manufacturing facilities would enable us to comfortably commit for higher
volumes of orders, for high value products and retain larger profits due to in-house value
addition for which we were technically knowledgeable and competent. We also had a
need for infrastructure in order to optimally produce for existing buyer's requirement.
With exhaustive first hand knowledge about plant and machinery required for weaving
and processing (The Director has had a practical orientation to manufacturing technology
and has visited a technical exposition with operational machines in Italy for 11 days;
several plant visits in India and abroad followed. It is necessary to state here that the
Director of the Company has acquired enough knowledge to design a factory and
determine the machine layout for a manufacturing plant; he could evaluate and choose
an optimal line of modern machinery as good as an experienced Technical Consultant; has
been extensively negotiating with machinery suppliers from the world over as also kept in
constant contact with several renowned dealers of pre-owned machinery from around the
world.) We proposed an integrated, modern, export-oriented shuttleless terry weaving
and processing plant of project cost Rs 558.25 lakhs, to be implemented in two phases so
as to make the bank feel comfortable about the risk perceived. A fairly accurate project
cost summary and preliminary papers were submitted on 18th April 2000].
The same day we presented detailed workings outlining the orders on hand from our
Buyer also indicating anticipated orders from a larger United States company. Our
conservative estimate of achievable turnover was Rs 4.5 crores for the following 12
months. We sought Rs 120 lakhs as a Packing Credit Limit and Rs 120 lakhs as FUBP limit.
We requested the bank to appraise with "a total and complete understanding of our
needs"
The proposal for funding under TUF (which fully qualified fro IDBI refinance) was not
taken up by the bank.
Nor did the bank act upon our packing credit requirements. Limits sanctioned remained
unaltered and remained firmly inflexible. Even on June 4, 2000, we were making special
requests to the bank to allow us to overdraw by Rs 50,000 over and above our sanctioned
limits of Rs 60 lakhs. Such contingencies are considered part of business and it is a
practice of good banks to trust the branch management with discretionary ad hoc
sanction powers of up to 25% of the sanctioned limits over and above the limits
sanctioned by the sanctioning authority. Whether or not this Branch had such powers is
unknown, but it was always maintained that the Branch Manager couldn’t alter the limits
sanctioned by a higher authority than the Branch Manager, even marginally. This has been
the position of various Branch Managements, which made the limits inflexible.
Again during April 2000 the bank was concerned about our Term Loan sanction from
Sipcot, so we assured the bank we have not availed the term loan, that it was under
reappraisal and that we wished to have all our financial needs met by the Bank. We
further requested the bank to appraise our proposal for term loan.
As on 3rd July we were still in a situation wherein we had to submit a special request even
to overdraw by Rs 1 lakh.
On July 11, 2000 we clarified the bank's queries with emphasis on the production cycle
time.
[The concept of Production cycle and working capital requirement in Textile Industry,
which is one of our nation's backbone industries, is expected to be understood by the
lending institutions, as there have been several studies on the subject by the Reserve Bank
of India and other Government bodies. For instance the Tandon Committee Norms on
working capital finance clearly spell out probable requirement in terms of number of days
of inventory holding for inventory in various stages of processing. Various lending
institutions have accepted this as a guideline. The bank raised queries after queries about
our production cycle time, seemed n ot to u n ders tan d th e con ce pt of
pr odu cti on cycl e ti me and we over and over again prepared papers after papers to
show and illustrate the number of days / weeks of inventory required in the form of Raw
Material, Work in Process in Warping, Work in Process in Weaving, Work in Process in
Processing, Work in Process in Tailoring and in the form of Finished Goods. The bank
chose not to take note of the actual requirements.]
Again in the same letter dated July 11, the bank's concerns about our Term Loan from
SIPCOT were answered. Orders on hand and prospects were shown again and our request
to enhance the limits to Rs 120 lakhs of PCL and Rs 120 lakhs of FUBP was repeated.
By the time the sanction was issued by the Foreign Exchange Department of the Head
Office vide sanction order number 0136 dated 23/08/00/ERD/MDS sanctioned a PCL of Rs
80 lakhs and FDDP/FUBP limit of Rs 95 lakhs. On 30/8/2000 the bank completed
documentation formalities (every time there was any change in the limit, be it temporary
or permanent, fresh agreements were elaborately signed and fresh documents executed)
What was our requirement 2 years ago was sanctioned and by the time it was too little,
too late.
Our shipment schedules were badly hurt, our Buyer's prospects were damaged, our
reputation as a dependable supplier was damaged and it was well past time to retain the
orders of Rs 3.4 crores paced in November 1999, which required as much as Rs 160 lakhs
of PCL alone. 80 lakhs was granted after all the time elapsed for the time-sensitive
valuable orders that could have elevated us into much higher position considering the
fact that our growth had been four fold in the first three years. The sanction did not come
in Nov when we had 3.4 crores of orders, it did not come when our buyer revised the
quantity downwards with an extended schedule on January 14, 2000.
Even by the revised schedule the whole series of shipments were to have been largely
completed by July 30, 2000 (latest possible date of shipment as agreed in order to "arrive
in Montreal on15th September". What remained when the sanction was issues was one
container of shop towels of value Rs 19 lakhs.
It was as if the bank was waiting for the orders to elapse before a semblance of facilities
was granted.
The damage was done. The delay in sanction and the insufficiency of it hurt our prospects
and the damage spilled over to affect our Buyer's prospects. Even then on February 7,
2001 a fax message was received that the Buyer could take three more containers of terry
towels and one container of shop towels of approximate value Rs 50 lakhs. There was a
sharp note that "it was important for us to know if the above schedule can be respected".
The schedule given allowed no room for confirmation. The first two containers of terry
towels required allowed virtually no time for production, but the remaining one shop
towel shipment and one terry towel shipment were completed as under:
February 7, 2001 - shop towels shipped for US $ 43,680

March 8, 2001 - terry towels shipped for US $ 23,595.
It re q u ir ed sev er al vi si ts to th e bra n ch , a f ew visi ts to th e R egi on al of fi ce

an d Head of f i ce, ov er 4 00 ela bor ate, tim e con su mi n g l etter s, sev er al fa x
an d emai l messag es to obtai n , ava il an d oper ate th e li mit ed l im it s, wh i ch
w er e al ways too li ttl e, too l at e, wi th total di sr eg ar d to ou r capa bil it i es,
per f or man ce, g r o wth r ecor d an d pr ospects. Th e ba n k was cr ip pl in g l y
con ser va tiv e an d f ar too secu r it y or i en ted.
What ought to have been less than a clerical work, required the Company Director’s
direct involvement, taking his time away from valuable and important matters to
unnecessarily imposed compelling banking formalities, which not only wasted valuable
time and diverted focus, but kept the financial position uncertain – ALL THE TIME.
Procedural difficulties were such that for the first 18 months of operation the company
had a practice of transferring packing credit loan in lump sums of Rs.10 or 15 lakhs when
the actual requirement for the day
Was Rs.1 or Rs.2 lakhs so to say.
To av oid u n cer ta i n ti es, w e tr ans f er r ed l ar g er amou n ts at on e st r oke to

ou r cu rr en t accou n t at th e sa me br an ch , which did not pay interest for the
interest-charged PCL transfer. This was to avoid uncertainties and unwanted unforeseen
objections by the branch citing trivial imaginary procedural problems.
The bank did make administrative changes at the Branch level, by way of transferring one
officer and one Manager, but after three years of procedural hardship and arbitrary
demands, the new Branch Manager was posted perhaps to restore the Branch
Administration and in complying with this requirement for this Branch which required a
lot of administrative attention, the new Branch Manager was perceivably far too cautious
and conservative. The excessiveness in caution reflected badly on our account which had
suffered from the absence of such discipline at the Branch level for 3 years. Our prospects
were hurt in the absence of order as also because of excessive order at the Branch level.
The limits granted by the Head Office at Rs 80 lakhs was kept frozen by the Branch
Management when we had a dire need for a certain flexibility in operation.
Every time limit was temporarily sanctioned and every time the temporarily sanctioned
limit was made permanent and every time there was an enhancement some kind,
elaborate legal/documentation formalities were carried out which by itself was time
consuming and time delaying process.
All along our communication with the Bank has been vivid, expressive and exhaustive, be
it in personal meetings at the Branch or Higher Offices, or in the form of written
communication by letter, fax or email, or in the form of a proposal with detailed
workings. Th e ban k was c ompl etel y awar e of ou r r eq u ir emen ts of th e l ev el
of f u n ds tha t we re q u ir ed to ser vi ce th e or der s on ha n d ; th e ban k was
awar e tha t ou r pr odu cti on was i n cr easi n g l y del ayed f or wan t of f u n ds; the
bank knew that we were trying to compensate for the absence of bank's support by
resorting to the relatively expensive market credit; that our choice of suppliers were
limited when we required supplies on credit; that it was expensive for us to maintain even
a part of our delivery commitments, expensive for us to maintain quality on credit terms -
Th e ba n k kn e w al l thi s an d mor e . Th e ban k ch ose to di sr eg ar d ou r
r eq u ir emen ts an d th e bu sin ess on ha n d an d th e pr ospects wer e h ur t an d
damag ed.
For the past 18 months we have been requesting the bank to assess our requirements
comprehensively and the Bank does not pay attention. A letter was addressed to the
Chairman on 10th December 2001 direct by email to the Chairman's email address and a
copy of it sent by courier, and reminders were sent to follow up and there is no response
from the Chairman of the Bank.
The Branch now threatens to issue us a recall notice. If the bank proceeds with the recall
course it will only help to kill a promising industrial unit, which has been contributing to,
the nation's export pursuits. We submit that it is unfair to throttle life out of our
promising industrial enterprise, which can produce certain, and significant results.
We are now looking forward to attention by the top management of the bank, assistance,
guidance and support to make this unit realize its promising potential. The export policy
of the government of India has identified textile export as one of the potential area for
development and has announced various concessions and benefits to improve the export
performance in the textile sector. Various studies reveal that there is wide scope for
further enhancement of textile exports. On the overall export front, the current economic
survey points out the dismal performance of the export sector in our country. The export
growth is only 0.3 per cent. We need to export more but if the banking system does not
support the exporters with a positive approach, our exports can not increase. Instead of
providing an impetus, the approach of banks like the Federal Bank thwart the existing
potential for exports.
We emphasize that:
· The company has put forth substantial efforts to expand its market. Its website
www.whitefieldcotton.net is being increasingly noticed by many prospective
textile buyers from around the world. Through the Internet the company is
receiving valuable enquiries every day.
· We have built up some infrastructure facilities. But because of the unhelpful

attitude of the bank we are unable to do optimally utilize the infrastructure built
up. Besides the bank does not allow us to make the facilities more integrated and
modern, despite the Government's thrust in the form of schemes such as the
Technology Up gradation Fund. On the other hand, the bank is throttling us by
keeping our limits frozen. This amounts to extinguishing our business, though it is
neither in our company's interest nor in the bank's interest.
· We are now even more determined to proceed with our manufacturing project.
Even before we approached SIPCOT we did try to obtain the term loan facilities
from Federal Bank in 1997. We had asked for a Term Loan denominated in Foreign
Currency and the Head Office turned down with the observation that the Bank's
exposure to foreign currency is limited to a maximum period of 3 years. The Head
Office did not offer us alternatives such as a Rupee Term Loan. At present, in
order to carry on the production, we needed some balancing equipments. We
now request the bank to extend term loan assistance to build up inhouse
processing facilities. If this is not possible we request the Bank to grant us minimal
term loan facilities that we require immediately to balance our present
manufacturing facilities. We are ready to offer additional collateral securities to
cover this limit.
· Eventually we are to go ahead with our plans for a shuttleless weaving and soft-
flow processing unit. If the bank would prefer not to fund this expansion, we
emphatically submit to the Bank to at least allow us to avail the required project
finance from any term lending institution like SIDBI or IDBI. The bank has so far
been unfavorable to this proposal and we were unable to make progress with our
applications to the institutions due to this reason.
· Our liabilities have become overdue. We are making arrangements to clear all the
interest liabilities. The proposed sale of the family owned property is taking time
to materialize. The company requires time to pay up the interest, especially
because it is now family owned/generated funds that meet the present overheads
and maintain minimal operations in the absence of our inability to accept valuable
orders.
· We proposed to take up yarn exports, which would boost our export performance.
When facilities were sought giving various options for the bank to consider, the
bank chose not to take notice and let the opportunity slip by. We would like the
bank to give us a commitment that it would facilitate yarn export transactions.
· We wish to be in a position to commit to produce and export terry towels, fabrics

and other made ups. If are to make export commitments, we should be in a
position to avail additional Packing Credits from the bank.
· What is required is a comprehensive assessment from the Bank of our capital and
credit needs. We have been making this request for over a year now. At the
moment any fresh order accepted requires fresh production and additional funds.
The absence of support, even at this delayed stage, would degenerate a
prosperous establishment with a promising growth potential. A comprehensive
solution to the present cash flow difficulties and the infrastructure needs is sought
from the bank.
· We have appointed an experienced financial consultant to prepare a

comprehensive revival plan, which is already prepared as a draft. We are in the
process of finalizing the plan. We require the Bank's support to present and
implement the plan.
The success of any industrial unit depends upon the financial partnership also. If the banks
do not understand the industrial enterprise's financial needs and extend timely help, even
the most promising industrial units cannot survive. The bank's support and guidance is
required to turn this unit into one of the best textile-manufacturing unit in South India.
We look forward to a broader assessment and a positive response from the bank. Despite
all the problems as pointed out above, the fact remains that it is Federal Bank that
sanctioned limits to us to begin our existence as an export company. We are grateful to
the bank for this original assistance and we still believe that a clear understanding of our
requirements by the top management would enable us to emerge as one of the best
performing textile establishments in India.
We had presented the case in detail to the Chairman of the bank through our letter dated
December 10, 2001. But we have not received a reply, not even an acknowledgement
from the Chairman, despite reminders. The bank is now hostile and refuses to extend
support. The bank is not assuming the advisory role expected of it.
We are very eager to perform, expand and clear the bank’s liabilities and contribute to
the country’s export growth. We are therefore, approaching your office to interfere and
advise the bank to be reasonable, consider our financial requirements, associate with us in
preparing a revival plan and encourage us and enable us to become a significant
contributor to our nation's economy.
We request a positive and timely response.
Yours faithfully,
For Whitefield Cotton Private limited
M Sivasubramanian
Director
Cc to:
1. The Hon’ Minister of Commerce, Government of India, New Delhi ( with a request
to intervene)
2. The Hon’ Minister of Finance, Government of India, New Delhi
3. The Hon’ Minister for Textiles, Government of India, New Delhi
4. The Textile Commissioner, Mumbai (with a request for his immediate intervention
to solve the problem)
5. The Governor, Reserve Bank of India, Mumbai
6. Shri K P Padmakumar, Chairman, Federal Bank Limited, P B No. 103, Head Office,
Aluva 683 101
Email 31 Aug 2003 1 52 pm
To padmakumar@federalbank.co.in
cc chsec@federalbank.co.in, mdsr@federalbank.co.in, rswamynathan@hotmail.com
Sir,
Please pay attention and make the required amends.
Thank you.

Shiva Muthusamy
Director.
Date: Wed, 13 Aug 2003 14:37:29 +0530

To: padmakumar@federalbank.co.in
From: cotton <cotton@whitefieldcotton.net>
Subject: Reminder 1: our account with your Erode Branch.
Cc: chsec@federalbank.co.in
with a copy to the Chairman's Secretariat at the Bank with a request to remind the Chairman that
this matter is pending his attention.
Shri Padmakumar
Chairman
Federal bank Limited
Aluva.
Sir,
The following letter, sent both by email and by Registered Post is pending your acknowledgement
and response since July 17, 2003. This is concerning a matter taken up with you as Chairman as
the Head of the Bank which is pending your attention and acknowledgement since 10th December
2001.
Delays and omissions by the Bank has caused us considerable hardship and because the bank is
still delaying appropriate corrective remedies for its omissions, our losses are further increasing
and our troubles are intensifying.
We hope that the bank is forthcoming at least after all these delays.
Thank you.
Shiva Muthusamy
Director.
Date: Thu, 17 Jul 2003 22:04:47 +0530
To: padmakumar@federalbank.co.in
From: cotton <cotton@whitefieldcotton.net>
Subject: our account with your Erode Branch.
Shri K P Padmakumar
Chairman
Aluva.
Dear Sir,
Our company has been banking with your bank since its commencement of business in 1996 and
had made steady and consistent progress till year 2000 availing packing credit limits from your
Erode branch well secured with collaterals and guarantees. From time to time we were facing
various problems with regard to the assessment and review of our credit needs as also due to
various procedural hurdles and administrative irregularities at the branch level with three
consecutive branch managements.
In particular the bank restrained us from executing a bulk order for Rs. 3.43 crores in November
1999, by delaying assessment of our request for the required limits while simultaneously
preventing us from moving to any other bank. At about the same time due to this uncertain
attitude of the bank we could not take up another major order from an American Company which
was even more valuable.
The bank had frozen our limits and this completely reversed all the progress that we had made
during 1996-2000 and incapacitated our business causing loss of revenue and profits apart from
completely hurting our prospects.
The various details have been summarized in our request for a comprehensive review of our
accounts by a detailed and elaborate letter addressed to the Chairman on 10th December 2001,
which was a step taken to bring the chairman's attention to how the bank's practices and the
branch level hurdles were hurting our business prospects.
We waited for your response which was not forthcoming despite repeated reminders so a year
later the matter had to be taken up with Reserve Bank of India. Later the Writ Petition (No 41167
of 2002)_ has also been filed in the High Court of Madras, which also did not prompt the bank to
make suitable amends.
Due to various irregularities that existed at the branch administration during 1996 - 2001 and due
to the bank's refusal to pay attention to our credit needs while preventing us from moving to a
different bank, our company's prospects were severely hurt. The bank had unfairly frozen our
account three years ago and this had completely hurt our business and it is estimated that our
losses of profit due to loss of business alone amount to a value of Rs 2.4 crores, apart from the
value of further progress on various business fronts, the value of the damage to our business
reputation and personal anguish caused by the situation.
For the first four years of operation the procedural hurdles and delays at your bank limited our
growth prospects in terms of establishing manufacturing facilities and accepting larger export
orders. During the last three years whatever little progress that was made during the first four
years was reversed, which caused considerable erosion of our inventories and other resources
which left us crippled. There were various ways by which we were affected. Our work in process
of that time was rendered unusable midway due to the situation forced upon us by the bank's total
disregard for our needs and the way it kept our account frozen. There were various other
practical business factors that come into play when flow of resources were blocked. For instance
alternative market borrowings that were forced upon us by the situation was prohibitively
expensive. The quality of materials purchased with contingent market credit could not be assured.
Time delays were expensive with a multiplier effect. One major problem lead to a multiplicity of
problems and the losses multiplied, our various resources decayed during the last three years and
the combined effect is such that it absorbed the money invested in stocks and work in progress.
The bank was completely unwilling to allow us to move to any other bank that had a good
understanding of our clean transaction record and prospects, nor did the bank allow us to create
the manufacturing facilities required with Term Loan assistance from supportive term lending
institutions.
Our business is completely incapacitated since the last three years. Our losses as on this date,
17th July, 2003 are estimated as under:
* The profits lost in the unserviceable portion of the export order of Rs 3.43 crores alone was
estimated to be Rs 60 lakhs including the drawback/DEPB benefits that would have accrued to
us.
* The loss of export orders from our regular buyer, Fonora Textiles, Canada, whose orders were
at a level of about Rs 4 crores per year, (without considering the annual increase in volume which
was sometimes as high as 50%) was Rs 8 crores during the last 2 years which caused us a loss
of profit and export benefits of Rs 1.4 crores.
* The loss of profits on account of a FRACTION of the various local transactions that we had to
refuse would be another Rs 40 lakhs.
This estimate excludes the loss of business with an American Company whose transactions were
to be larger and far more valuable which could not be taken up due to our situation at the bank.
This estimate does not taken into account the numerous other positive enquiries from several
overseas companies that could not be entertained despite all the positive interest shown by the
companies by email correspondence and personal visits. Besides this estimate excludes our
losses due to the various procedural hurdles and limitations caused by your branch during the first
four years - between 1996 and 2000.This estimate does not truly reflect the extent of our
prospects hurt by the restraint placed on us on the opportunities that we had to set up suitable
manufacturing facilities. Beyond all this is the loss of reputation to the company and the directors
and loss of the Directors' time and all the anguish caused, for which we still have not assigned a
value.
The bank still fails to respond to the situation even after all these delays and losses. Under the
circumstances it is appropriate that we make a claim for the Rs 2.4 crores estimated lost and in
addition a suitable compensation for the damages to our company's reputation and the personal
and family level anguish caused.
Thank you.

M.Sivasubramanian.
Director.
______________________________________________________________________________________________
_______________
http://www.whitefieldcotton.net
______________________________________________________________________________________________
_______________
______________________________________________________________________________________________
_______________
Attn: Shri B P Sudhakar, Consultant.
Wednesday, April 07, 2004
Dear Sir,
We have received a letter from RBI (enclosed) which has declared the file closed after making
some observations based on its inspection of whatever papers that the bank would have made
selectively available for RBI inspection.
After explaining the limits in the scope of RBI's authority, the letter goes on to record that it has
examined my "allegations" in detail and that the bank "had extended ad hoc limits to us...", there
was "possible diversion of funds" on our part, that the examination "did not reveal any apparent
contravention or violation on the part of the bank" and that "the allegations about delay and
inadequacy in the limits sanctioned by the bank were not supported as per records [ that the bank
would have made selectively available ] of the bank.
There was no stock inspection done, and there was no diversion of funds. I had pointed out to the
bank time and again that stocks with various vendors in half-finished condition remained unrecovered.
What little was recovered were unusable and any little proceeds by necessitated sale of any portion of the
wasted stocks were consumed by the company, for the company's needs, in the cash-crunch situation that
resulted due to the bank's hostile attitude that froze facilities.
There was no inspection of our records - the application copies, correspondence, our repeated pleas to
the bank on various dates and no mention of why the bank is taking over two years to issue a legible,
comprehensive statement of accounts.
There is no mention of anything about the management scandals at the branc nor ,about the bank
having blocked other banks from taking over our account.
There are no directives to the bank to give us a way out of this unfair situation. The letter
concludes by saying that it is not within the ambit and scope of the authority of the RBI to
consider our counter claim etc. The RBI regrets its inability to intervene in the matter of our
grievance against Federal Bank.
Sincerely,
Tuesday, November 16, 2004 ( sent by speed post )
Smt Usha Thorat

Executive Director
Department of Banking Operations and Development / Banking Supervision
Central Office Building
Mumbai 400 001
Dear Madam,
Sub: Our Unresolved complaint against Federal Bank Limited from Whitefield Cottons P
Limited.
Ref: Our complaints to the RBI on March 1, 2002, our complaint with Banking
Ombudsman filed on August 28,2002, our email dated August 31, 2003, letter from
Powerloom Development and Export Promotion Council (PDEXCIL) dated August 16,
2004 and Your letter RBI IECD No 4329 / 04.02.03 / 2003-2004 dated March 25, 2004
sent to PDEXCIL in response to their letter dated August 16 2004.
To follow up on our representations to the Reserve Bank of India on our various

problems with Federal Bank, which caused a complete reversal of our export business
prospects and halted our operations, I met Mrs Makhija, Chief General Manager at her
office at Mumbai on 29th March this year.
On this occasion the various DETAILS including the Administrative Staffing history of
the bank's Erode branch were narrated to you in detail. After nearly about an hour of
patient listening, your position was that two inspections were done on the branch,
which was extraordinary action on the part of RBI, so RBI had acted on the complaint,
and beyond this "RBI is helpless".
This was the third instance of discouragement by the Reserve Bank of India on our plea
for a solution to our problem with Federal Bank.
First we brought this problem to Reserve Bank of India on March 1, 2002 with a copy
addressed to the Union Finance Minister. Reserve Bank wrote to us "we are not in a
position to intervene as the matter pertains to credit dispensation" also observing that
the account had already slipped into NPA category. Our complaint was not a simple one
to be so dismissed. It was just that the bank had squeezed us into this NPA status.
Subsequently we complained to the Banking Ombudsman, Chennai on August 28, 2002.

Our complaint was that Federal Bank had wronged us, blocked and reversed our
company's progress and kept us in a state of total helplessness. Banking Ombudsman did
not take up the complaint with the explanation that "loan transactions are commercial
judgment and at the discretion of the sanctioning bank and hence do not come under
our purview in terms of the Banking Ombudsman Scheme" vide its letter
BO(CHN)/2580/PR 051/2002-2003 dated 9th September. We promptly pointed it out
that the complaint was not about the commercial judgment of the bank.
On these two occasions there was complete refusal on the part of Reserve Bank of
India even to read the complaint in full, and the case was dismissed on assumptions that
the case concerned the bank's commercial judgment.
It was elaborately pointed out to the Reserve Bank that the case was not such a simple
one. And after several requests including our detailed communication addressed to the
Executive Director and other officers including Mrs Makhija on August 31, 2003,
Reserve Bank of India looked into the complaint and inspected the branch.
We do not understand the following:
• When a complaint of this nature was investigated why were we not asked to
explain our case, to counter the bank's defensive attempts to suppress documents,
facts and misrepresent the situation?
• An inspection of the branch would have happened but what possible records
would the bank have made available to the RBI inspectors?
• Why were we not asked to submit copies of our records of dates of applications,
letters written to the bank and other relevant documents?
The bank must have selectively furnished some papers to show that everything was in
order. The bank was comfortably allowed to misrepresent facts and the bank's erroneous
version of what it did to us some how found its way to RBI's records, enough for RBI to
send out a letter of inaccurate observations.
The letter RBI IECD No 4329 / 04.02.03 / 2003-2004 dated March 25, 2004 declared the
file closed after making inaccurate, unverified comments based on its inspection of
whatever papers that the bank would have made selectively available for RBI inspection.
The bank was conveniently allowed to comfortably defend its case with choice papers
from its file, we were never contacted by RBI, our papers were not called for, there was
not even a phone call from RBI to us to verify the bank's version and whatever
misrepresentations made by the bank were placed on record by RBI which culminated in
a letter that said the case closed.
After explaining the limits in the scope of RBI's authority, the letter goes on to record that
it has examined my "allegations" in detail and that the bank "had extended ad hoc limits
to us...", there was "possible diversion of funds", that the examination "did not reveal any
apparent contravention or violation on the part of the bank" and that "the allegations
about delay and inadequacy in the limits sanctioned by the bank were not supported as per
records [ that the bank would have made selectively available ] of the bank.
1) There was no diversion of funds: We have invested our DEPB and Drawback
proceeds of approximately Rs 40 lakhs over 3 years to construct a factory building, buy
industrial land, machinery. This has been well within the knowledge of the branch and the
bank and has been mentioned by us in our communication to RBI on March 11, 2002 for
which a copy was eventually sent to the bank’s chairman. This has been stated again and
again as part of the case history forming part of our complaint and this has been
completely left unread and the Reserve Bank of India made an observation that there was
"possible diversion of funds". Is this the bank's only defense to avoid or block scrutiny by
RBI ?
2) Inventory position was as per norms before the bank froze our account, inventory
position was never an issue. If there was any inventory loss, it happened long AFTER our
account was frozen and not before, so this was not a cause, but rather an effect. When the
account was frozen it was pointed out to the bank time and again that stocks with various
vendors in half-finished condition remained unrecovered. What little was recovered were
unusable and any little proceeds by necessitated sale of any portion of the wasted stocks
were consumed for the company's needs, in the cash-crunch situation that resulted due to
the bank's hostile attitude that froze facilities. This happened long AFTER our account
was frozen and not before, so this was not a cause, but rather an effect. The bank is
confusing the sequence of events here.
3) The bank is refusing to furnish a comprehensive statement of accounts in spite of
several requests since July 7, 2002. The bank's accounting procedure was not in order,
there is no statement of credit entries and interest debits and the bank is dodging this
request for over 2 years now. NO PCL, FUBP STATEMENTS HAVE BEEN ISSUED
SO FAR, NOT IS CLEAR HOW THE BANK ARRIVED AT OUTSTANDINGS. This
has been mentioned in our letter to RBI, and no directive has been issued to the bank. RBI
hasn't verified why the bank is taking over two years to issue a legible, comprehensive
statement of accounts. It is important for us to know this especially in the light of the
branch’s administrative history.
4) RBI has not made any note of anything about the management scandals at this corrupt
branch and about how it affected our account, nor has the RBI made any observations
about the bank having blocked other banks from taking over our account. The branch has
had a corrupt administrative history of two successive branch managements legally or
internally punished which by itself is an indication of various branch level hurdles the
company faced which led to all the hardships. Reserve Bank dismisses this as an internal
matter.
5) The bank's ad hoc limits were so called ad hoc, but followed rigid documentation
procedures and took months to be sanctioned in most instances, often termed ad hoc as an
act of convenient paperwork, that kept it both non-committal and pending. Enhancement
procedure for our export account took 6 months for partial sanction and as much as 700
days for sanction as requested, by which time the limit sanctioned had become too little,
too late...
6) The inspection done at the branch was one sided. There was no inspection of our
records - the application copies, correspondence, our repeated pleas to the bank on
various dates were not examined. The bank suppresses a lot of records and selectively
presents papers to justify its position.
7) There are no directives to the bank to give us a way out of this unfair situation. The
letter concludes by saying that it is not within the ambit and scope of the authority of the
RBI to consider our counter claim etc. The RBI regrets its inability to intervene in the
matter of our grievance against Federal Bank.
All that Reserve Bank of India has done so far on this case is to protect the bank. So
we had sought the help of Powerloom Development Export Promotion Council of which
we are a member, and PDEXCIL felt it appropriate to write to the Reserve Bank of India
again. After a time gap Reserve Bank of India repeated the reply that the case is closed.
Reserve Bank has closed the complaint without offering any solution to us in the face of
an unfair situation wherein a bank caused a company's stagnation, covered its faults by
reporting the account as NPA, which keeps the company in a state of ineligibility for
necessary funding and in a situation of complete helplessness.
But the summary of RBI's position is that RBI is helpless.
We are surprised that whatever authority it has is directed against business companies and
in favor of the bank. RBI's rules give an upper hand to the bank in this situation. For
instance our account is classified as NPA irrespective of the fact that it is the bank that
caused it. By using this provision to brand our account as NPA the bank keeps us in a
state of no options. Even the legal framework is conceptually biased in this matter. The
Debt Recovery Tribunal which has been established, as the name implies, has the object
of recovering debts and with this purpose, the faults of the banks are not looked into in
detail. Counter claim procedures are such that it is prohibitively difficult for any company
from making a fair and just counter claim.
Under the circumstances our request to RBI in this situation is as follows:
1. We request thorough scrutiny and a solution. PDEXCIL has requested action against
the bank under provisions of Para 1.3.3 of your circular No
BOD.IECS.NO24/04.02.02/2004- 2005. Timely extension of credit facilities to Exporters
has NEVER happened at Federal Bank in our account. The bank's procedures were
cumbersome, its policies and practices were restrictive, the bank took months to partially
meet our requirements and took as much as 700 days to grant us an enhancement of 75
lakhs, by which time the sanction was too little too late as also locally prevented at least
two other banks from extending us the required facilities, when our account was attractive
for the other banks. The provisions of Para 1.3.2 of your circular are equally applicable in
our case as the bank did not extend us the term loan requested and when we obtained a
sanction from from SIPCOT for Rs 1.5 crores, the bank became very uncooperative,
which was one of the prime reasons why the term loan was surrendered unutilized after
documentation and payment of upfront fees which amounted to completion of all
formalities.
2. As an interim solution pending outcome of a thorough and complete investigation into
our case. RBI may please remove our company name from the list of NPAs because it is
the bank which caused this situation. Because of this unfair status, our company is unable
to approach any other bank for our export credit needs and hence unable to accept export
orders for the past 3 years.
3. Please enable us to make use of the Technology Upgradation Fund for modernization,
which again is blocked because of the fact that our account continues to be classified as
an NPA, due to the fact that our account is trapped with Federal Bank as inoperable.
4. Please pay attention to our case in detail and offer us a banking solution to our
company, which continues to receive an influx of export orders that can not be accepted
for want of funds. We require export credit from any other bank, which is fair and square.
5. Please look into unfair provisions such as DRT's counter claim procedures that overly
protect banks and keep affected companies crippled. We request RBI to recommend to
the DRT for a waiver of any fee payable and make it possible for us to press our counter
claim as sent to the Bank's Chairman vide our letter dated July 17, 2003 to be revised to
include continuing damages.
Thank you.
M. Sivasubramanian
Director.
Tuesday, November 16, 2004 ( date seen on the letter sent, but the speed post reciept on
our file copy indicates that the letter was mailed on 27th November and received at RBI on
29th Novermber)
[ sent with a one page Executive Summary and annexure flowcharting the complexity of
the bank's accounting process ]
Cc to
The Governor, Reserve Bank of India.
Shri B P Sudhakar, Powerloom Development and Export Promotion Council
A printed copy of the email sent to Smt Shyamala Gopinath, Deputy Governor, Reserve
Bank of India on January 17, 2005 which includes a copy of a letter sent to Smt Usha
Thorat, Executive Director, Department of Banking Operation, RBI on November 16,
2004
From: Whitefield Cotton <whitefieldcotton@gmail.com>

Reply-To: Whitefield Cotton <whitefieldcotton@gmail.com>
To: sgopinath@rbi.org.in
Cc: pdepc@gems.vsnl.net.in, shiva@india.name
Date: Mon, 17 Jan 2005 00:09:14 +0530
Subject: our company's problem with Federal Bank as briefly
outlined to you at the Pravasi Bharathi Divas meeting.
Dear Madam,
I met you after the session on Finance during the Pravasi Bharathiya
Divas last Sunday. Thank you very much for receptively listining to my
brief narration of our problem with Federal Bank which has been
represented to RBI at various levels repeatedly. For unknown reasons
the Reserve Bank of India has not taken note of the harm done by
Federal bank to our company nor has RBI offered any solution to the
problem.
This is a brief summary of our repeated compaint to RBI pending for

nearly three years. This summary is followed by a letter recently
addressed to Smt Usha Thorat that directly addresses the issue of
inadequate response from RBI. To our surprise RBI has again
responded with a one line letter that refuses to take note of our
grievances but insensitively reiterates the complaint closed.
Our company, Whitefield Cottons P Limited

(http://www.whitefieldcotton.net is in the business of exporting
cotton terry towels and our export record since we began operations in
1996 was consistent and rapidly progressing. We were exporting
direct, mostly to Canada, all with Letters of Credit, with a blemishless
transaction record.
In summary our complaint was about the following
· With all the procedural problems and delays we were performing

very well as an exporter and our performance improved from US $
106,600 in 1996-97 to US $ 473,476 in 1998-99 a four-fold growth of
performance in 3 years. This could have been far more if the bank had
been professional and if the branch administration was clean in its
assessment and service.
· The bank Refused to consider a promising proposal for creating

manufacturing facilities
· The bank blocked us from utilizing a term loan of Rs.1.5 crores

sanctioned by SIPCOT, (sanctioned, mortgage created, charge
registered, upfront fee paid and withdrawn three years later unutilized)
· The bank took our 180 days to partially concede to our

requirement of a Packing Credit Loan facility of Rs.75 lakhs (taking
collaterals of actual value in excess of Rs 1 crore further strengthened
by personal gurantees of directors and others)
· The bank took 700 days to fully sanction our requirement in full,
by white time the sanction was too little for our requirements that had
grown several fold.
· The bank prevented us from moving to any other bank which

could have more responsive. There were at least three such instances
known.
· The bank hurt a major export order for US $ 803,750 placed by

our regular buyer who had established a buying record well known to
the bank, in spite of our repeated request for assessment of this highly
time sensitive situation. At that point of time our limits were Rs 80
lakhs of Packing Credit and Rs 105 lakhs. The Packing Credit was
fully utilized while all the bills purchased by the bank had realized, but
the bank did not offer us the flexibility of allowing the unitized portion of
the post shipment limits usable for pre-shipment needs. Nor did the
bank allow us even the marginal flexibility of exceeding the sanctioned
Packing Credit limit even by a fraction. With this impossible situation
the export order of US $ 803, 750 could only be partially executed, that
too with market borrowings forced upon us by the situation, which was
prohibitively expensive and insufficient, so the production was delayed,
quantities ordered were reduced and finally the order was largely
cancelled. With this event, our progress began to reverse, and our
company's finances were severely damaged.
The bank watched us degenerate and collapse without even

acknowledging that its Erode Branch has hurt a customer so badly.
· The bank has done more serious damage by abruptly freezing

our account due to which our business came to a standstill during
the last four years with prosperous opportunities for growth and profit
foregone and the losses are increasing.
· The bank blindly refuses to evaluate our requirements, problems

and prospects in spite of various repeated requests for a
comprehensive understanding of our problems and prospects.
· During the last four years the bank has been completely silent on
its role, refuses to acknowledge any communication from us to its
Chairman or other officials.
. The branch had three consecutive branch managements that

were corrupt, came under investigation for charges as commonplace
as corruption and as appalling as forgery, and against this background
our account suffered and our progress reversed.
. Rather than respond by examining the branch

management's and its own role in reversing our progress and offer a
solution, the bank has brought us into a situation of our account being
classified as an NPA which is a status that RESULTED out of the
banking problem, but this NPA status is cited by the bank as its entire
defense for it stand of destructive inaction.
. The bank has misrepresented its case with RBI as also with
DRT where its has filed documents that mislead the DRT into believing
that we have not made any remittance of any of the packing credit /
FUBP withdrawals, whereas in reality our repayments have been
prompt and were to the tune of US $ 1.5 million. The bank claims an
outstanding of Rs 80 lakhs plus interest which is its sole focus, but this
too is unsupported by proper statement of accounts. Our request for a
comprehensive statement of accounts is pending with the bank since
July 7, 2002 made directly through the bank and repeated by three of
our petitions at the DRT.
. We have made a claim for damages from the bank but the
bank has not responded so far.
The following is the most recent communication sent to the Reserve

Bank of India which MORE CLEARLY EXPLAINS THE STATUS OF
OUR COMPALINT WITH THE RESERVE BANK OF INDIA. A copy of
the letter has also been addressed to the Governor, Reserve Bank of
India. The matter is now placed before you for your attention. Please
offer us a solution out of this problem.
Thank you.
Sincerely,
M. Sivasubramanian
Director
Whtiefield Cottons P Limited
389/1 Perundurai Road
Erode 638 011
Tamilnadu, India
Tel ++91 424 5501174
++91 93641 00639
__________________________________________________
Tuesday, November 16, 2004
Smt Usha Thorat

Executive Director
Department of Banking Operations and Development /
Banking Supervision
Central Office Building
Mumbai 400 001
Dear Madam,
Sub: Our Unresolved complaint against Federal Bank

Limited from Whitefield Cottons P Limited.
Ref: Our complaints to the RBI on March 1, 2002, our

complaint with Banking Ombudsman filed on August
28,2002, our email dated August 31, 2003, letter from
Powerloom Development and Export Promotion Council
(PDEXCIL) dated August 16, 2004 and Your letter RBI
IECD No 4329 / 04.02.03 / 2003-2004 dated March 25,
2004 sent to PDEXCIL in response to their letter dated
August 16 2004.
To follow up on our representations to the Reserve Bank

of India on our various problems with Federal Bank,
which caused a complete reversal of our export business
prospects and halted our operations, I met Mrs Makhija,
Chief General Manager at her office at Mumbai on 29th
March this year.
On this occasion the various DETAILS including the

Administrative Staffing history of the bank's Erode
branch were narrated to you in detail. After nearly about
an hour of patient listening, your position was that two
inspections were done on the branch, which was
extraordinary action on the part of RBI, so RBI had acted
on the complaint, and beyond this "RBI is helpless".
This was the third instance of discouragement by the

Reserve Bank of India on our plea for a solution to our
problem with Federal Bank.
First we brought this problem to Reserve Bank of India on

March 1, 2002 with a copy addressed to the Union Finance
Minister. Reserve Bank wrote to us "we are not in a
position to intervene as the matter pertains to credit
dispensation" also observing that the account had already
slipped into NPA category. Our complaint was not a
simple one to be so dismissed. It was just that the bank
had squeezed us into this NPA status.
Subsequently we complained to the Banking

Ombudsman, Chennai on August 28, 2002. Our complaint
was that Federal Bank had wronged us, blocked and
reversed our company's progress and kept us in a state of
total helplessness. Banking Ombudsman did not take up
the complaint with the explanation that "loan transactions
are commercial judgment and at the discretion of the
sanctioning bank and hence do not come under our
purview in terms of the Banking Ombudsman Scheme"
vide its letter BO(CHN)/2580/PR 051/2002-2003 dated
9th September. We promptly pointed it out that the
complaint was not about the commercial judgment of the
bank.
On these two occasions there was complete refusal on the

part of Reserve Bank of India even to read the complaint
in full, and the case was dismissed on assumptions that
the case concerned the bank's commercial judgment.
It was elaborately pointed out to the Reserve Bank that the

case was not such a simple one. And after several requests
including our detailed communication addressed to the
Executive Director and other officers including Mrs
Makhija on August 31, 2003, Reserve Bank of India
looked into the complaint and inspected the branch.
We do not understand the following:
· When a complaint of this nature was investigated

why were we not asked to explain our case, to counter the
bank's defensive attempts to suppress documents, facts
and misrepresent the situation?
· An inspection of the branch would have happened

but what possible records would the bank have made
available to the RBI inspectors?
· Why were we not asked to submit copies of our

records of dates of applications, letters written to the bank
and other relevant documents?
The bank must have selectively furnished some papers to
show that everything was in order. The bank was
comfortably allowed to misrepresent facts and the bank's
erroneous version of what it did to us some how found its
way to RBI's records, enough for RBI to send out a letter of
inaccurate observations.
The letter RBI IECD No 4329 / 04.02.03 / 2003-2004 dated

March 25, 2004 declared the file closed after making
inaccurate, unverified comments based on its inspection of
whatever papers that the bank would have made
selectively available for RBI inspection. The bank was
conveniently allowed to comfortably defend its case with
choice papers from its file, we were never contacted by
RBI, our papers were not called for, there was not even a
phone call from RBI to us to verify the bank's version and
whatever misrepresentations made by the bank were
placed on record by RBI which culminated in a letter that
said the case closed.
After explaining the limits in the scope of RBI's authority,

the letter goes on to record that it has examined my
"allegations" in detail and that the bank "had extended ad
hoc limits to us...", there was "possible diversion of funds",
that the examination "did not reveal any apparent
contravention or violation on the part of the bank" and
that "the allegations about delay and inadequacy in the
limits sanctioned by the bank were not supported as per
records [ that the bank would have made selectively
available ] of the bank.
1) There was no diversion of funds: We have invested

our DEPB and Drawback proceeds of approximately Rs 40
lakhs over 3 years to construct a factory building, buy
industrial land, machinery. This has been well within the
knowledge of the branch and the bank and has been
mentioned by us in our communication to RBI on March
11, 2002 for which a copy was eventually sent to the bank's
chairman. This has been stated again and again as part of
the case history forming part of our complaint and this has
been completely left unread and the Reserve Bank of India
made an observation that there was "possible diversion of
funds". Is this the bank's only defense to avoid or block
scrutiny by RBI ?
2) Inventory position was as per norms before the bank

froze our account, inventory position was never an issue.
If there was any inventory loss, it happened long AFTER
our account was frozen and not before, so this was not a
cause, but rather an effect. When the account was frozen
it was pointed out to the bank time and again that stocks
with various vendors in half-finished condition remained
unrecovered. What little was recovered were unusable
and any little proceeds by necessitated sale of any portion
of the wasted stocks were consumed for the company's
needs, in the cash-crunch situation that resulted due to the
bank's hostile attitude that froze facilities. This happened
long AFTER our account was frozen and not before, so
this was not a cause, but rather an effect. The bank is
confusing the sequence of events here.
3) The bank is refusing to furnish a comprehensive

statement of accounts in spite of several requests since
July 7, 2002. The bank's accounting procedure was not
in order, there is no statement of credit entries and interest
debits and the bank is dodging this request for over 2
years now. NO PCL, FUBP STATEMENTS HAVE BEEN
ISSUED SO FAR, NOT IS CLEAR HOW THE BANK
ARRIVED AT OUTSTANDINGS. This has been
mentioned in our letter to RBI, and no directive has been
issued to the bank. RBI hasn't verified why the bank is
taking over two years to issue a legible, comprehensive
statement of accounts. It is important for us to know this
especially in the light of the branch's administrative
history.
4) RBI has not made any note of anything about the

management scandals at this corrupt branch and about
how it affected our account, nor has the RBI made any
observations about the bank having blocked other banks
from taking over our account. The branch has had a
corrupt administrative history of two successive branch
managements legally or internally punished which by
itself is an indication of various branch level hurdles the
company faced which led to all the hardships. Reserve
Bank dismisses this as an internal matter.
5) The bank's ad hoc limits were so called ad hoc, but

followed rigid documentation procedures and took
months to be sanctioned in most instances, often termed
ad hoc as an act of convenient paperwork, that kept it both
non-committal and pending. Enhancement procedure for
our export account took 6 months for partial sanction and
as much as 700 days for sanction as requested, by which
time the limit sanctioned had become too little, too late...
6) The inspection done at the branch was one sided.

There was no inspection of our records - the application
copies, correspondence, our repeated pleas to the bank on
various dates were not examined. The bank suppresses a
lot of records and selectively presents papers to justify its
position.
7) There are no directives to the bank to give us a way
out of this unfair situation. The letter concludes by
saying that it is not within the ambit and scope of the
authority of the RBI to consider our counter claim etc. The
RBI regrets its inability to intervene in the matter of our
grievance against Federal Bank.
All that Reserve Bank of India has done so far on this case
is to protect the bank. So we had sought the help of
Powerloom Development Export Promotion Council of
which we are a member, and PDEXCIL felt it appropriate
to write to the Reserve Bank of India again. After a time
gap Reserve Bank of India repeated the reply that the case
is closed.
Reserve Bank has closed the complaint without offering

any solution to us in the face of an unfair situation
wherein a bank caused a company's stagnation, covered
its faults by reporting the account as NPA, which keeps
the company in a state of ineligibility for necessary
funding and in a situation of complete helplessness.
But the summary of RBI's position is that RBI is helpless.
We are surprised that whatever authority it has is directed

against business companies and in favor of the bank. RBI's
rules give an upper hand to the bank in this situation. For
instance our account is classified as NPA irrespective of
the fact that it is the bank that caused it. By using this
provision to brand our account as NPA the bank keeps us
in a state of no options. Even the legal framework is
conceptually biased in this matter. The Debt Recovery
Tribunal which has been established, as the name implies,
has the object of recovering debts and with this purpose,
the faults of the banks are not looked into in detail.
Counter claim procedures are such that it is prohibitively
difficult for any company from making a fair and just
counter claim.
Under the circumstances our request to RBI in this

situation is as follows:
1. We request thorough scrutiny and a solution. PDEXCIL

has requested action against the bank under provisions of
Para 1.3.3 of your circular No
BOD.IECS.NO24/04.02.02/2004- 2005. Timely extension of
credit facilities to Exporters has NEVER happened at
Federal Bank in our account. The bank's procedures were
cumbersome, its policies and practices were restrictive, the
bank took months to partially meet our requirements and
took as much as 700 days to grant us an enhancement of
75 lakhs, by which time the sanction was too little too late
as also locally prevented at least two other banks from
extending us the required facilities, when our account was
attractive for the other banks. The provisions of Para 1.3.2
of your circular are equally applicable in our case as the
bank did not extend us the term loan requested and when
we obtained a sanction from from SIPCOT for Rs 1.5
crores, the bank became very uncooperative, which was
one of the prime reasons why the term loan was
surrendered unutilized after documentation and payment
of upfront fees which amounted to completion of all
formalities.
2. As an interim solution pending outcome of a thorough

and complete investigation into our case. RBI may please
remove our company name from the list of NPAs because
it is the bank which caused this situation. Because of this
unfair status, our company is unable to approach any
other bank for our export credit needs and hence unable to
accept export orders for the past 3 years.
3. Please enable us to make use of the Technology

Upgradation Fund for modernization, which again is
blocked because of the fact that our account continues to
be classified as an NPA, due to the fact that our account is
trapped with Federal Bank as inoperable.
4. Please pay attention to our case in detail and offer us a

banking solution to our company, which continues to
receive an influx of export orders that can not be accepted
for want of funds. We require export credit from any other
bank, which is fair and square.
5. Please look into unfair provisions such as DRT's counter

claim procedures that overly protect banks and keep
affected companies crippled. We request RBI to
recommend to the DRT for a waiver of any fee payable
and make it possible for us to press our counter claim as
sent to the Bank's Chairman vide our letter dated July 17,
2003 to be revised to include continuing damages.
Thank you.
M. Sivasubramanian
Director.
Tuesday, November 16, 2004

Cc [ of this letter dated November 16, 2004 ] to
The Governor, Reserve Bank of India.

Shri B P Sudhakar, Powerloom Development and Export
Promotion Council
-- M Sivaubramanian
Director
389/1 Perundurai Road
Erode 638011
TN India
++91 424 5501174
++91 93641 00639
Hon’ Shri P Chidambaram
Minister for Finance
Government of India
Monday, January 31, 2005

Hon’ Minister,
This follows a request to you in person at the Pravasi Bharathiya Divas when I
presented my Business Card to request if I may write to you about a banking problem.
This problem has now reached a point of necessity for the Finance Minister’s attention.
Our company, Whitefield Cottons P Limited is in the business of exporting cotton terry
towels and our export record since we began operations in 1996 was consistent and
rapidly progressing until year 2000 with total export turnover of about $ 1.5 million. We
were exporting direct, mostly to Canada, all with Letters of Credit, with a blemishless
transaction record.
We have a banking problem with Federal Bank Limited, which damagingly refused to
understand and respond to our banking needs to sustain our demonstratedly multiplying
export performance, while at the same time blocking our clean, bankable, secure
account from being moved to any other bank in this small town. This hurt our prospects
and reversed our progress and continues to keep us financially incapacitated during the
last four years.
Efforts at Branch level went unheeded (the branch had its own internal administrative
history of successive corrupt administrations taken to task). Repeated factual and polite
representations to the Chairman were ignored. An eventual application to the Banking
Ombudsman was not taken up on the ground that the complaint pertained to “a case of
commercial judgment” which it was not. Subsequent representations to the Reserve
Bank of India were not studied in detail for sometime, repeated representations to RBI
prompted RBI to do an inspection of the Branch in response which did not result in any
solution to the problem presented.
I learnt about the inspection done at the branch during a meeting at RBI with the Chief
General Manager (and her team) at her office at Mumbai on 29th March 2004. The
meeting was apparently receptive and attentive. It was understood that RBI did single
out this complaint for as much action as an inspection of the bank, but that RBI did not
find any documentary evidence to indicate anything wrong. It was pointed out to RBI
during the meeting that this action was insufficient as RBI looked for documentary
evidence at the bank without notifying us or calling for our papers or talking to us. This
allowed an opportunity for the bank to present a conveniently distorted picture possibly
by presenting selective documents and choice papers (for instance, a half sanction
would be given on a certain day and part of the procedure for acceptance is an
application form in the prescribed format, filled up for the sanctioned amount, signed on
the day of the sanction or on the previous day. Such a record presents an illusion of
‘then and there action’ on customer’s needs while in reality it took several months of
inordinate delay before our request reached the stage of even a partial sanction.
Records of irregularity pertaining to the branch’s history in general and of irregularity
pertaining to this account in particular must have been conveniently suppressed by the
bank.
The position taken was that “RBI is helpless”. RBI deems that the inspection done
sufficient as a response, enough to send us a letter that on record shows action on the
complaint, enough to declare the file closed without offering any solution of any kind.
The bank had given its version in an attempt to justify the bank’s actions on paper. RBI
listed the bank’s version in its letter to us. We first took up this issue with the Powerloom
Export Promotion Council and later wrote to RBI to examine our earlier communication
to RBI which had already disproved the bank’s version, repeated our request for a
solution but an official of the RBI sent us a letter enclosing a copy of the earlier letter
saying RBI “has to nothing to add [to the earlier letter] on this matter”.
The earliest communication to the Finance Ministry on this issue was a copy of the
complaint addressed to the RBI on March 11, 2002. A direct letter was later addressed
to the former Minister for Finance on September 4, 2003. With this background this
problem is now represented to the Finance Minister with the following submissions:
1. This is a company with very promising prospects that could emerge as a

business of significant size, with definite plans to scale up to a size of an
international label, trapped in an unfair banking situation.
2. There is an unfair categorization of our account as an NPA, a status that

RESULTED out of the banking problem. This inevitable status makes our
company prima facie stigmatized for a solution of any kind from any other bank
3. Regulatory authorities are perhaps hesitant to isolate this company’s problem

from that of the general problem of NPAs affecting the banking sector at large,
which is understandably a problem of macro economic implications, but we are
trapped in this macro economic situation unfairly.
4. Legal framework on this area is [1] inadequate (the nuances are not understood
in depth) [2] biased (for instance DRT is by definition a Debt Recovery Tribunal,
by title, in concept and formation a little bit pro-bank, not a balanced arbitration
council or a full judicial court), [3] limited (the absence of the lender’s liability
concept etc.), [4] prohibitive (the procedures laid down for pressing a counter
claim are such that it requires a comfortable degree of affluence to begin and go
through the process) and [5] inordinately slow.
5. A particular submission is that this company has been continuously in a position

to receive larger export orders that could not be accepted due to the absence of
an alternate banking arrangement. Also, the company had to drop its plans to
establish a modern textile plant under the TUF scheme. At present there is an
opportunity for private equity / scale up funding but the unfair stigma is a
deterrent that we are struggling to get past.
We request the Finance Minister to enhance our faith in our Government by primarily
accepting this complaint for thorough scrutiny of the banking history with specific
attention to the administrative history of the Erode branch of Federal Bank that has
blocked and crippled our company’s progress and the complete history of the bank’s
evaluation process of our account.
Our business has to become functional to reemerge out of this NPA status (resulted out
of the banking situation). This requires that this status be set aside to enable us to bank
with another bank, infuse funds for a scale up, which are measures needed this
company grow. There is a bankable business plan bottled up since 1999.
This company is penalized perhaps because of the overall pressure on the Regulatory
authority to be tough on NPAs in general. The request here is that the Reserve Bank of
India pays attention to the specific situation that led us to this status rather than apply all
generalized guidelines essentially evolved to address the problem of NPAs in the broad
context.
As it would be improper for us to request the Ministry to assess our damages, we will
wait with patience in a climate of judicial reforms underway for a judicial ruling on our
claim for damages from the bank. The concept of lender’s liability is at its nascent stage
in India, the legal framework is evolving, but we have faith in the legal system and wish
to legally argue our case thoroughly in a court of law.
But the process being an inordinately slow process, but our government could be swift,
so interim solutions are requested as follows:
a) We request the Hon’ Minister to review our NPA status. We appeal to have this
status set aside or offer us any other solution by which our company will not be
subjected to a prima-facie refusal by other banks / financial institutions / private
investors.
b) We request proactive intervention by the Finance Ministry to get us past our
present banking hurdles. In particular, we require a few banks to be receptive to
us and take a deep look beyond our apparent problem, give us a fair hearing
and thorough evaluation and offer us a Private Equity / Venture Capital /
conventional banking solution on progressive banking norms.
c) We request the Ministry to examine the infeasible procedures for filing a counter
claim for damages arising out of failure of lender’s liability. We require a waiver
for court fees / partial deposit of the lender’s claim and file a counter claim
against the bank in a court of law.
d) We request continued receptiveness by government till this problem is resolved
e) In summary we request swift and proactive evaluation and directives on all of the
above.
The spirit of this communication arises out of immense faith in our Government.
Thank you. Hon’ Minister.
For Whitefield Cottons Private Limited

Sivasubramanian Muthusamy (Shiva)
Erode, Monday, January 31, 2005
Hon’ Shri P Chidambaram
Minister for Finance
Government of India
Hon’ Minister,
Ref Our letter to the Finance Minister dated January 31, 2005 ( copy enclosed )
Our company, Whitefield Cottons P Limited has a banking problem with Federal Bank
Limited, which damagingly reversed our Export Progress and has kept our company blocked
from banking with any other bank for our banking needs for the past 5 years which has been
even more damaging.
The problems stay unresolved at various levels of Government and was brought to the
Finance Minister’s attention vide our letter dated January 31, 2005. The papers are
resubmitted in person to request the Minister’s attention.
a) We request the Hon’ Minister to review our NPA status. We appeal to have this status set aside
or offer us any other solution by which our company will not be subjected to a prima-facie refusal by
other banks / financial institutions / private investors.
b) We request proactive intervention by the Finance Ministry to get us past our present banking
hurdles. In particular, we require a few banks to be receptive to us and take a deep look beyond our
apparent problem, give us a fair hearing and thorough evaluation and offer us a Private Equity /
Venture Capital / conventional banking solution on progressive banking norms.
c) We request the Ministry to examine the infeasible procedures for filing a counter claim for damages
arising out of failure of lender’s liability. We require a waiver for court fees / partial deposit of the
lender’s claim and file a counter claim against the bank in a court of law.
d) We request continued receptiveness by government till this problem is resolved
e) In summary we request swift and proactive evaluation and directives on all of the above.
Thank you. Hon’ Minister.

For Whitefield Cottons Private Limited
Sivasubramanian Muthusamy (Shiva)
New Delhi, Wednesday, May 24, 2006
Updated address for communication:

389/1 & 2 Perundurai Road
Erode 638 011
Tamilnadu India.
+91 424 4030334
+91 99524 03099
Email addresses: whitefieldcotton@gmail.com

india9952403099@gmail.com (dominant and preferred)

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The Governor

Reserve Bank of India

✗ The bank has not provided us with a comprehensive statement of our

In summary, the bank was completely unwilling to allow us to move to any

Instead of responding to the situation caused by these banking problems, or responding

Inconclusive closure of the complaint to RBI

We requested thorough scrutiny and a solution. We sought interim solutions to enable

The inaccuracies of the Inspection Report are as follows:

The Scrutiny note is of this manipulative logic:

I won't look at the facts, nor would I verify facts

1996-97 Exports US $ 106,600

4069 dt 18/2/99, 4070 dt 18/2/99, 6084

i) Branch level in person requests denied for months.

The logic of the bank's case at the DRT is as illustrated below

Whitefield Cottons' Whitefield Cottons'

Balance outstanding by this illustration +5

Bank goes to court with a claim for

Bank's claim of outstandings 30

Total claim by the bank 60

a) PCL is requested and transferred to the Current Account and the

We have no clear statements to understand what was the Principal outstanding,

The choice of the arbitrary period is not explained

This was a company which progressed from an export performance of 40 lakhs to

We are sending a shipment of 1 x 40 container load of cotton terry towels

The orders on hand amount to US $ 803,750 amounting to Rs. 3.45 crores,

With the 60 Lakhs of PCL available to us it is difficult to meet the peak

For Whitefield Cottons P Limited

REGISTERED POST WITH ACKNOWLEDGEMENT DUE

The Senior Manager,

We therefore, request you to consider the following facilities to us:

With warm regards,

January 23, 2002

A copy of the communication sent to the senior manager of Erode branch is

January 23, 2002

The Senior Manager,

Sub: Whitefield cottons P Limited export performance amidst present financial

As shown in our email FEDERD@ MD4.VSNL.NET.IN, we are making an

We continue to make efforts to sell either one of our Director’s/

In the meantime we once again submit that our progress is financially

The General Manager,

Detailed Executive Summary:

Land 1.64 acres of prime, developed industrial land in a prominent location: We

Used Japanese Terry Weaving Machines: We bought 28 imported second hand

Supporting Machinery: We also bought a secondhand baling machine, a 40 KVA

Tailoring Machinery: We acquired 6 powered straight-line sewing machines and 18

Factory Building: A factory building admeasuring 5000 sq.feet was constructed in a

Office Building: Office infrastructure was greatly improved with a newly

Year Export Sales Profit

We have now sought the assistance of a financial consultant and he is working on a

The details related to our requirement of funds and the bank's

After repeated representation the Regional Office on 10/11/1998revalidated the

1996-97 US$ 106,600

Ach ie va bl e Expor t Sal es f or th e f oll o wi n g 1 2 mon th s was esti mated wi th a

While our progress improved from US $ 106,600 in 1996-97 to US $ 473,476 in 1998-99 a

· Refused to consider a promising proposal for creating manufacturing facilities

· we had commissioned 22 out of 28 terry weaving machines and the machines

February 7, 2001 - shop towels shipped for US $ 43,680

It re q u ir ed sev er al vi si ts to th e bra n ch , a f ew visi ts to th e R egi on al of fi ce

To av oid u n cer ta i n ti es, w e tr ans f er r ed l ar g er amou n ts at on e st r oke to

· We have built up some infrastructure facilities. But because of the unhelpful

· We wish to be in a position to commit to produce and export terry towels, fabrics

· We have appointed an experienced financial consultant to prepare a

We request a positive and timely response.