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M. Ramesh

The common code would cover the ticklish matter of subvention, among others. This refers to the practice of original equipment manufacturers (OEMs) offering a discount to financiers rather than to consumers, and asking the financiers to pass on the discount to the consumer in the form of lower interest rates.

CHENNAI, Feb. 13

THE Equipment Leasing Association of India (ELAI), comprising 130-odd non-banking finance companies, is in the process of bringing out a code of common business practice.

ELAI's Chairman, Mr V. A. George, told Business Line that a committee was working on the draft of the code, which was expected to be ready soon.

Members would voluntarily agree to follow the code, which would standardise terminology, the sequence of events in processing deposits and advances, format documentation and prescribe a set of dos and don'ts.

High on the list of topics was the ticklish matter of subvention. This refers to the practice of original equipment manufacturers (OEMs) offering a discount to financiers rather than to consumers, and asking the financiers to pass on the discount to the consumer in the form of lower interest rates.

The NBFCs have problems with such an approach, but they need to come to an understanding among themselves first, to get out of the system.

Another problem was the absence of common terminology. Mr George pointed out that disparate terminology sometimes created confusion. For example, `delayed charges', `penal interest', `additional finance charge', all essentially meant the same, but gave the impression of being different.

Another example: sometime back Sundaram Finance did a due diligence of a Delhi-based NBFC for taking over its portfolio. Said a senior official of Sundaram Finance: "The documents were so confusing that we could not figure out whether it was a HP or leasing or any other kind of financing. We gave it up in fright."

Standardised documentation would not only avoid such problems but also help avoid any temptation on the part of the financier to word the agreements ambiguously, so as to pull a fast one on the borrower.

Another important component of the `common business practices' code is the section that concerns `re-possession' or `recovery agents'.

The general impression is that recovery agents are thugs who use strong-arm tactics to recover assets. But industry sources said this was not necessarily so.

In order to erase such an impression and also to avoid any sporadic case of strong-arm methods, ELAI wanted the repossession agents to get themselves registered with the association and get accreditation.

There will also be a code of conduct for repossession agents, the violation of which could result in withdrawal of accreditation and, consequently, loss of business.

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