Credit and financing for MSMEs: The industry body for small businesses, the Federation of Indian Micro, Small and Medium Enterprises (FISME), has warned its members, who are existing or potential customers of Kotak Mahindra Bank, against “restrictive and contrary practices ethics” of the latter. In a three-page advisory note published by FISME last week titled “Advice to MSMEs on Kotak Mahindra Bank”, FISME said that “a relationship with Kotak is often perceived as having hidden costs, higher interest rates, excessive foreign exchange commissions, overcharging for routine service charges and poor service delivery. A copy of the note was seen by Financial Express Online.
FISME, which has over 700 member associations representing around 20 million MSMEs, cited in its note challenges related to non-compliance fees, foreclosure fees; failing to issue free authorizations, false assurances, applying “debit freezes” without prior notice, etc. faced by small businesses wishing to switch banks, leaving Kotak Mahindra Bank.
Below are the screenshots of FISME’s information note to its members:
“Shockingly, in challenging this harassment by Kotak in court or ombudsman, a flimsy argument is made that it is not their responsibility to notify customers individually and that the customer should have gone to Kotak’s website. Kotak – meaning what is written in the fine lines if the client should read and understand,” FISME said in the note.
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Kotak Mahindra Bank spokesperson Rohit Rao, in response to FISME’s allegations, told Financial Express Online: “FISME’s letter, which you shared via email, makes unsubstantiated allegations against our bank. FISME concealed and distorted vital facts. We vehemently deny each of the allegations. Kotak Mahindra Bank never engages in unbankable, immoral or illegal practices. The bank serves many MSME clients across India and has always strived to provide high quality service to its esteemed clients. I would ask you to refrain from writing anything malicious or incorrect in your prestigious publication.
Meanwhile, Anil Bhardwaj, Secretary General of FISME, said Kotak Mahindra Bank should revoke the non-compliance and other charges imposed on the five MSME whistleblowers (on the basis of which the issues were raised by FISME against the bank) and that they would be allowed to leave the bank. “In addition, the bank should issue transparent guidelines on non-compliance fees. In the event of a violation, the red flag must be raised monthly/quarterly. Raising the non-compliance fee when the customer exits should be considered bad faith and prohibited,” Bhardwaj told Financial Express Online.
The SME sector has been one of the areas of growth for Kotak Mahindra Bank, one of the largest private lenders in the country. The bank had recorded a 21% year-on-year growth in its SME segment to Rs 18,994 crore during Q3 FY2022 from Rs 15,702 crore in Q3 FY2021 and 4% to Rs 18,205 crore during Q2 FY2022, based on its Q3 results.
“We have been focused on acquiring new quality customers in both the secure and non-secure space of the MSME segment. 85% of the book qualifies for the priority sector. We will continue to grow in the MSME space by expanding our distribution footprint, multiple and deep channels and enabling technology,” said Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank during the third quarter earnings conference call. The bank had also partnered with the National Small Industries Corporation (NSIC) in August last year to offer business and working capital loans at “attractive” interest rates to NSIC-registered MSMEs. .