A Misconceived Idea

A strange loan proposal came to me through one of my branches, when I was posted in a loan CPC (Central Processing Centre) at Mumbai.

A partnership firm wanted to set up a business of making polythene bags. Around fifteen years back, polythene bags of every size and thickness were the order of the day. Nothing could be imagined without plastic. So the partners were confident that their venture would do a roaring business.

The amount of loan requested was Rs 12 million consisting of both cash credit and term loan. I went through the proposal and its appraisal. I also studied how plastic bags were made.

Finally I called them, but only one of the two turned up. His name was Ravish, a marketing expert, as he had been selling cosmetic products of two renowned companies for the last fifteen years and wanted to take a plunge in a different but promising area altogether.

I was amazed at his confidence and straightforwardness. He was a commerce graduate and had no knowledge or experience in this line of activity. But he was sure that his marketing skill would give him a competitive edge over other players. He had also plans to diversify his business into other plastic products.

During discussions, he revealed that the other partner, Gajanan would be a sleeping partner.

The reason was that Gajanan had his own business of real estate and he had agreed to mortgage one of his godowns as collateral security with the bank in favour of the firm. The godown was in a dirty and abandoned place and kept vacant. The actual valuation was much less.

But the real catch was their internal agreement that Gajanan would take 10% of the loan amount every year as the rent of the property apart from sharing the profit of the firm.

I was stunned as the interest rate applicable was also14%. Ravish had therefore to manage his business  with only three-fourths of the loan amount. The actual gainer was Gajanan, whose 10% was guaranteed irrespective of the firm’s profit or loss.

I asked Ravish whether he was convinced with the proposed arrangement. He had already paid thousands of rupees to a chartered accountant and a lawyer for finalising the proposal.

The firm’s projected financial statements were not at all convincing. The proposal prima facie appeared to be unviable. I rejected the proposal with a sincere advice to Ravish to go back to his marketing profession he was adept at.

The unsolicited advice boomeranged on me. He made a complaint against me and my appraising officers, but I didn’t budge from my stand.

I don’t know where is Ravish and what he is doing now, but in retrospect, I think I didn’t contribute, at least at my level, to the plastic menace we are in now.

–Kaushal Kishore

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