Credit and Finance for MSMEs: Industry body for small businesses Federation of Indian Micro and Small & Medium Enterprises (FISME) has cautioned its members, who are existing or potential customers of Kotak Mahindra Bank, of the latter’s “restrictive and unethical practices.” In a three-page advisory note issued by FISME last week titled ‘Advisory for MSMEs on Kotak Mahindra Bank’, FISME said “a relationship with Kotak is often seen to come with hidden costs, higher interest rates, excessive forex commissions, overcharging for routine services 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 lakh MSMEs, in its note has cited challenges around non-compliance charges, foreclosure charges; not issuing no-dues clearances, false assurances, applying ‘debit freezes’ without prior intimation, etc., faced by small businesses, who want to switch to another bank, exiting Kotak Mahindra Bank.
Below are the screenshots of the advisory note by FISME to its members:
“Shockingly, on challenging this harassment by Kotak in a court or at ombudsman, a flimsy argument is offered that it is not their responsibility to inform customers individually and that the customer ought to have checked the Kotak website- meaning thereby that what is written in the fine lines if foe the customer to read and understand,” FISME said in the note.
Kotak Mahindra Bank’s spokesperson Rohit Rao in response to FISME’s allegations told Financial Express Online, “The FISME’s letter, which you have shared over email, makes unfounded allegations against our bank. FISME has concealed and misrepresented vital facts. We vehemently deny each and every allegation. Kotak Mahindra Bank never indulges in practices that are either against banking norms or are immoral or illegal. The bank serves numerous MSME customers across India and has always endeavoured to provide high quality service to its esteemed customers. I would request you to refrain from writing anything that is malicious or incorrect in your esteemed publication.”
Meanwhile, Anil Bhardwaj, Secretary General of FISME said Kotak Mahindra Bank should revoke the non-compliance and other charges imposed on the five whistleblower MSMEs (based on which issues were raised by FISME against the bank) and they be allowed to exit the bank. “Also, the bank should come out with transparent guidelines on non-compliance charges. In case there is violation, the red flag should be raised monthly/ quarterly. Raising the non-compliance charges at the time when the customer is exiting must be considered mala fide and prohibited,” Bhardwaj told Financial Express Online.
SME sector has been among the growth areas for Kotak Mahindra Bank, one of the largest private lenders in the country. The bank had recorded a 21 per cent 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 per cent from Rs 18,205 crore during Q2 FY2022, according to its Q3 results.
“We focused on new quality client acquisition both in the secured and unsecured space in the MSME segment. 85% of the book qualifies for priority sector. We will continue to grow in the MSME space by expanding distribution footprint, multiple and deeper channels and technology enablement,” Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank had said during Q3 earnings call. The bank had also partnered with National Small Industries Corporation (NSIC) in August last year to offer business and working capital loans at ‘attractive’ interest rates to MSMEs registered with NSIC.