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Vicious cycle of default darkness

- The we-didn’t-know chorus and the cost
Bengal Defrauded
Asma Khatun peels cashew nuts. Picture by Pradip Sanyal

Asma Khatun has never stepped out of Contai sub-division in East Midnapore, nor has she ever dreamed of going on a vacation. But the day labourer has spent Rs 7,100 on tour packages for Gopalpur and Darjeeling, two destinations she had never heard of.

For the 21-year-old who spends 12 to 14 hours every day cracking open oil-soaked black shells to extract cashew nuts, the only objective in life has been to earn two square meals a day.

Matters changed towards the end of 2012 when Syed Amir Shah, a Saradha Group agent, convinced her of the supposed benefits of the saving scheme.

The resident of Badhia village, around 15km from Contai town, started cutting down on consumption to save for her future — a decision she is ruing after learning that Saradha has collapsed.

The plight of Asma is by no means singular. Countless such stories are being retold across Bengal since the scandal broke. A closer look brings out the methodical manner in which Saradha and other companies went about their business to bait poor and unlettered people like Asma and a cycle involving all stakeholders that led to the crisis.

Saradha appeared to have zeroed in on Amir, a victim himself in hindsight — though his house has been vandalised by angry depositors — to convince Asma and others.

Amir was once loved by the villagers for clearing Class XII board exams against several odds. The company signed him up as an agent, probably hoping to cash in on his popularity and acceptability among the villagers.

Amir signed Asma up for two schemes — a monthly scheme of Rs 300 for 15 months and a one-time payment of Rs 5,000 — of Saradha Garden Resort & Hotels.

“Do you think poor people like us can think of going on vacations? I was only told that I would get good returns. So many people in our village were putting in their money and I did the same,” recounted Asma, taking time off peeling cashew nuts from their dark shells and showing the booking certificates.

One of the certificates revealed that she bought a Rs 5,250 tour package to Gopalpur for which she had to pay Rs 300 a month for 15 months. Till April this year, she had put Rs 2,100 into the scheme that has some similarities with a recurring deposit. The other scheme, which promised a Rs 20,000 tour package to Darjeeling after seven years, is more like a fixed deposit for which she had put in Rs 5,000 in 2012.

“Whatever my mother and I had saved is gone…. I made a big mistake,” said Asma, who earns around Rs 60 a day. The merchant from whom she gets the nuts gives Rs 120 to peel 40kg of cashew nuts.

The leafy village in one corner of East Midnapore is strewn with examples of what is called the bandwagon effect in textbook economics, in which individuals show a tendency to follow the actions or belief of others.

Not just Asma, her uncle Shaikh Azizuddin, who lost one of his kidneys two years ago, and brother Shaikh Munkar have bought similar packages for Kashmir and Uttarakhand.

No one is sure till now about the volume of deposits that Saradha, the sole company to officially go bust till now, has mobilised from rural areas across the state. A state government-appointed commission, headed by Justice Shyamal Kumar Sen, has been entrusted with the responsibility of assessing the extent of the crisis.

But a statement by Asma and her family members gives a hint of the challenge before the commission on why it may be difficult to get the full picture.

“Who will go to Calcutta, spending money, and appear before the government officials? We won’t go,” Asma said.

“We are poor, illiterate people, how do we know that we will be defrauded?” asked Azizuddin, echoing what chief minister Mamata Banerjee had said on April 22 while giving her first official reaction to the default crisis.

“I came to know about the default crisis on Poila Baisakh (April 15),” the chief minister had said.

The helplessness of people like Asma and her family, together with the apparent ignorance of the chief minister about the existence of sham companies like Saradha, to a great extent explains why the illegal deposit mobilising companies have robbed lakhs of people of their life’s savings.

But the impact of the killing deposit mobilisation companies were making in rural Bengal has been flashing on the radar of cooperative banks.

Reports available with the West Bengal State Co-operative Bank, the apex body of cooperative banks in the state, reveal that the rate of growth of deposits has been steadily coming down over the past few years and dipped to zero last year. (See chart)

“Almost all the co-operative banks were getting affected as the rate of growth of deposits dipped to around 10 to 12 per cent from earlier levels of 20 to 25 per cent,” said the chairman of a co-operative bank in East Midnapore.

According to him, the district not only figures among those with the maximum number of victims of the default crisis but it also has more than 280 deposit collection companies. The majority of these companies have their offices in Contai town.

“As part of their strategy, they were focusing on women and signing them up for shorter-duration schemes before convincing them to put money in for longer terms,” the bank official added.

Amir, Asma’s agent, corroborated the hypothesis. The youth said his main targets were village women, and his seniors had asked him to push shorter-duration recurring deposits initially and later move on to longer-term deposits.

“I myself had invested Rs 35,000 in a seven-year deposit,” said Amir, standing outside his dilapidated home that enraged depositors had attacked on April 16.

The 19-year-old said he could not imagine that the company which organised big programmes in Netaji Indoor Stadium and Science City — attended by Trinamul leaders such as Madan Mitra and Satabdi Roy — would go bust without repaying the money to depositors.

“I had attended the programmes and heard Sudipta Sir’s address. It was really inspiring,” recounted Amir, who is known as a Trinamul supporter in the locality.

The role of senior Trinamul leaders in patronising the sham companies, which gave the firms a sense of legitimacy, and party activists playing the role of agents at the grassroots level came up time and again when this correspondent met duped depositors in various parts of East Midnapore.

Although the companies received open endorsement from Trinamul leaders, blaming the ruling party alone for the crisis would be simplifying a deep malaise.

“The crisis would have happened even without a change of guard in Bengal as these companies started their operations sometime in 2007-08. These sham companies have a life cycle of five to six years…. The bubble would have burst even if the Left was in power. The only difference would have been the scale of the crisis as CPM leaders never overtly supported the sham companies,” said a manager of a cooperative bank in East Midnapore.

According to him, the bigger question was what the government was doing to prevent a repeat of the crisis.

The government has passed a bill in the Assembly with provisions to confiscate the properties of sham companies and their owners. As the process is a long-drawn one, it is difficult to assess the effectiveness of such a law right now.

But on the ground there is no sign of any let-up. Although the government has started an awareness programme to warn people of the possible consequences of depositing money with sham companies, a visit to Contai revealed that the initiatives remained only on paper.

When The Telegraph visited the sub-divisional town earlier this week, the offices of at least 20 such companies could be spotted on a 2km stretch on the Kharagpur Bypass.

Not just the numbers, the inability or refusal to prove that norms are being flouted, even in the aftermath of the Saradha crisis, stood out. “Yes, we mobilise deposits. We have the RoC (registrar of companies) registration,” said a man who refused to disclose his identity at the office of Matribhumi Projects, which has its head office in Serampore, Hooghly.

Pointed out that an RoC registration alone is not enough and a Sebi clearance is needed to mobilise deposits, the man refused to answer any further questions.

Several such money marketing companies are still carrying on with the business of deposit mobilising.

Take for instance the case of STPL, with its headquarters in Barrackpore, which has mobilised several crores from villages in and around Contai.

The company’s deposit mobilisation route is unique. It has been issuing post-dated cheques to depositors, most of whom don’t have bank accounts and don’t even understand the meaning of a bank account, for schemes maturing in 2025.

When some depositors went to the Contai office of the company to withdraw their deposits, they were turned away, which created law-and-order problems in the Majna area of Contai, the hub of cashew processing.

“I was saving small amounts for the wedding of my granddaughter, Habiba. I had put in Rs 10,000 and was given a cheque. Now I hear I won’t get the money. My son has thrown me out as I had put in the money without informing him,” said Rashida Bibi, a resident of Paniya village.

Rashida, who had saved the money by selling glass bangles in neighbouring villages for years, has spent the last week at a relative’s house.

When The Telegraph visited Paniya, at least 60 to 70 depositors, mostly women, rushed out of their homes to show the cheques issued by STPL.

Samsuddin Sek, in his 70s, took this correspondent to the house of Jahangir Ali Khan, the agent who had signed him up for the scheme that promised to multiply his investment by 10 times in 13 years.

“We trusted Jahangir as he was our neighbour…. Now he is absconding,” said Samsuddin, standing outside Jahangir’s house.

Jahangir’s wife Fatima said her husband had gone to Kharagpur for some work and she did not know when he would be back.

“We were issuing the cheques to win over the trust of people as we know that such cheques don’t mean anything. We never had any plans to defraud people, but suddenly we are facing some problems as a lot of investors want premature withdrawal,” said Pijush Nandi, the chairman of the company.

Some bankers The Telegraph spoke to said such post-dated cheques can be issued, provided there is an underlying agreement between the issuer and the receiver of such cheques. No such agreement, however, could be found with Samsuddin.

According to Nandi, the company got into deposit mobilisation as it had a registration with the RoC. He also said he wasn’t aware of the need for a clearance by Sebi, the capital markets watchdog.

Nandi’s disclosure completes a cycle of ignorance behind the crisis — depositor didn’t know that the company was taking him/her for a ride, the government was not aware of the operations of the companies and the owner of a company didn’t know the need for a regulatory nod.