I’ve been an entrepreneur for over a decade now and have been decently successful at it. In all these years, our firm has not taken one rupee of loan or even activated our overdraft account. We bring in a few crores worth of forex into the country each year, and pay a good amount of tax into the nation’s coffers. There are lakhs of firms like ours across the country, and together, we are pretty much the main drivers of the nation’s economy. We are a new-age ITES company and are quite adept at using any technology the government may want us to.
There is a lot of talk about banking reforms and how the country is doing phenomenally well at empowering startups and small and medium enterprises. In spite of all the technology at play, the NPA count has been increasing significantly and it is safe to say that if the Govt weren’t funnelling our tax money as liquidity influx to the banking system, we would’ve had a crash.
Indian banking system is actually one of the world’s most conservative, and our RBI has been collecting accolades for steering the ship through some pretty turbulent global macros. On one side we are sold an image of a free economy and paperless approvals, but anyone who’s in business will disagree.
The first account we created when we formed our firm was with Bank of Maharashtra; because of proximity. We have a practice of paying all our contractors and staff twice a month. We do over a hundred NEFT transactions each month. The bank did not want us to send them an excel sheet with the names, bank account details, and amounts, since they apparently ‘did not have the necessary manpower’ to process all these transactions. We initially fought with the chief manager and forced them to do it, and the mistakes they committed with every single transaction — mixed up account details, horrible narrations on our statement, processing not done on time — made us go back to doing our transfers ourselves. They have a OTP generator that is also a browser window, and whoever approved that security protocol must be fired and blacklisted from working anywhere in the Indian finance space. Public sector banks are often a joke, and there were several occasions when they did not have even a lakh in cash available after demonetisation to meet a cheque withdrawal we sent.
Since we are a firm that lives online, a chunk of our payments would come in from small clients via PayPal. For some strange reason, our Government decided a few years ago that PayPal is making lives too easy for entrepreneurs and put in place some weird rules. If a client paid us $100, and if we had to pay a contractor in some other country $50, we could no longer send it from our PayPal balance. Read that again. Money in our account which we cannot use. This rule still stands. The $50 has to go out from a connected credit card to the same PayPal. A credit card. Now let me explain what that does to folks like us who don’t have any other alternative than PayPal to collect money from small clients. $100 comes in. PayPal would charge 4% (plus GST, making it almost 5%) on the incoming money. So that is $95. If the exchange rate today is 64, PayPal would give us ~62. The $50 to be paid to a contractor would have to go out of a credit card. On that, PayPal would charge us ~67 if the exchange rate is 64. Plus the credit card would charge its own markup. So on incoming money, we lose ~10% counting the fees and currency conversion from PayPal, plus on the outgoing funds we lose another ~10% to markup and exchange. Thats 15–20% gone out of revenue right there. For most gigs, that is the entire profit margin! Earlier, we used to hold that in USD on PayPal to convert when the dollar moves up a few paise. But RBI, a few years ago, came up with the intelligent idea of a mandatory withdrawal at the end of each business day from every Indian PayPal account. So whether we like the exchange rate or not, we have no option but to see our funds come in automatically into the linked bank accounts. For small gigs, we would pay designers, writers etc on PayPal directly earlier. Now, we can’t pay other Indians using PayPal. So the funds we have there come into our bank account and then we have to pay these guys through their NEFT details, and pay a fees again on that. All this, when the firm’s PAN details are already linked to the PayPal account and i’m certain that transaction details are being shared with the RBI.
Along the way, we formed a second firm for another division and moved to Axis bank. Opened several dozen salary accounts, and worked up a good sized relationship with them. Now, remember we had to use a credit card to pay contractors abroad using PayPal? Till then, we would use one of our personal cards and reimburse it from the firm. Our CA took us to the cleaners when he saw the amounts we were charging there, and told us it would be counted as profit on the name of the credit card owner, and we were liable to 30% tax! So we wanted a credit card on the name of the firm. By then, we were doing a couple of crores worth of forex remittances each year. Still, Axis bank refused since ‘we did not meet’ their guideline for a credit card which needed over 5 crores to be remitted annually. We just needed a credit card with one lakh as limit, which we wanted to rotate for payments and server costs. So we said we’ll give you a fixed deposit, and you give us a credit card against 75% of that limit. They took in all paperwork, took our money for a deposit, and a month later, sent it back saying it is not possible. We cancelled the fixed deposit.
We scouted around all private banks, and Indus Ind bank agreed to give us a credit card against a fixed deposit. That too, with a caveat — the card would be on the name of one of our partners and the firm name would be mentioned in small letters below it. We agreed and for that, we had to open a business banking relationship with Indus Ind. Now, Indus Ind has a ridiculous plastic grid that we have to place against the computer screen and write out the numbers that show up, in order to authorize an NEFT transaction. Every single time. Whoever has thought up that ‘secure protocol’ should join that chap from Bank of Maharastra on the blacklist. I guess this is the work of all those engineers applying for bank jobs because they can’t get into (or don’t want to work in) their core sectors. Anyway, over the last two years, we used that credit card so much that the reward points itself gave us over 20000 worth of Titan vouchers, 20000 worth of Big Bazaar vouchers, a mobile phone for the office, and a Whirlpool Refrigerator! There still are a few thousand points remaining there. We are a small firm, and if we managed to rack up such points, imagine the amount of money we spent through it to pay our contractors and the fees we must have incurred because of those ridiculous PayPal rules and markup charges we spoke about earlier! Fees money which if there were a simpler alternative, we would gladly have paid the Government!!
Remember our Bank of Maharastra account? Last year, we got a payment in from a client which never got credited into our bank account even after 3 days. So we went to the bank and spoke to manager, who called their forex department, and they tried finding it through the SWIFT code and couldn’t. In a few days, we got an email from Axis bank saying that the funds had come in favouring our Bank of Maharashtra account but were frozen because something to do with the name
I’m not joking. They wanted us to confirm that they funds don’t have anything to do with Iran. Bank of Maharashtra did not know why the email was coming in from Axis bank. We later found out they were the transmitting agent via the central remittance hub, and our BOM folk did not even know that. Anyway, Iran got flagged somewhere along the way — in spite of us having received funds from that client several times over the years — from USA to India, and it took us over a month to resolve it. Not one person from our BOM branch could help us — they simply don’t know what’s happening. Their forex desk at Hyderabad couldn’t help either — they don’t know what they’re doing probably either! And Axis bank said we should speak to our banker and not to them since they’re not directly involved. Fortunately, we found a staff member through a common friend working at Axis Mumbai and she helped us sort this issue out and the funds got released after five weeks or something.
There are other stories like this I can share from our entrepreneurial journey, but this post has gone on long enough. Lets do one last example from last week and wrap it up. A client sent us money into our Bank of Maharashtra account and we got an SOS call from their forex department saying the names on the account wasn’t matching. We checked and nothing had changed; and this client sends us payments monthly. When we asked them to send us what they have on their end, they sent us a screenshot where the account name was changed to a name of one of our partners. Read that again. A current account name got changed to the name of one of our partners. It was a technical bug they said. A bug that changes account names?? We went to our local branch manager and showed him the cheque book on which our firm name was printed and screamed at him, and they apologized and changed the details by themselves (defeating that bug in a war, I would guess!). Since it was after 430 pm by then on last Friday, they got us the money a couple of days later.
At our office, we are tech savvy people. We understand technology and pretty much play with it all day long. We are decently educated, have accountants who help us, and have a lot of contacts to push things along in case of a hitch. Still, we face a hundred challenges from our banking system each year. And remember, we don’t have a loan, we have no overdraft, and the credit card we have is against a fixed deposit, on which they only gave us 75% as credit limit. Still, for us to access our money we have to use all our skill. What about all those fresh-out-of-college folk starting up something they dreamt of, or that rural entrepreneur wanting to make a difference to the farmers of his region? Our Government is celebrating today as MUDRA loan anniversary and is showcasing the thousands of folk who’ve apparently benefitted from the loans. I’m not disputing that small loans make a difference. But lets talk facts — a number of those loans will get written off along the way. The real soul of any nation’s entrepreneurship lies in small enterprises like ours which don’t require anything from the government, create steady employment, and give back to the economy manifold; Purely through their personal drive. All we need is for the government to not complicate things. We don’t need a loan from you. Your election promises mean little to us. You don’t need to worry about black money in firms like ours since every rupee lands in a bank account from a registered foreign entity, supported by an invoice and a FERA / FEMA declaration. The banking system — PSU more so — is not friendly at all. We bring in money, you have our PAN and TAN. You know the funds are in. If we don’t pay file our returns, the system will autogenerate a notice. Anyway we pay a six digit fees to our auditor, CS & CAs to make sure we’ve filed everything right.
There is a lot of talk of reforms. But these reforms are going in various directions. On one side you’ve increased the amount of paperwork and additional identifications, increased KYC compliance norms, and instituted cross linking of various identifiers. Fees being charged by banks has gone up because of that. Often, when we ask a bank as to why they’ve charged us with 10000+GST as ‘charges’ at the end of the financial year, they don’t have an answer! The system just generated it for whatever purpose! All we’re asking is to reduce the red tape and useless fees just to access the money we work hard to generate. Fees which, thanks to your confused policies, are not coming into the government’s coffers but going to various agencies which you’re just earning a small GST on top of. Charge us a transparent fees, genuinely ease up the policies. You have access to every rupee coming in and moving from our accounts. Don’t ask us for a zillion pieces of paper again and take up hundreds of accountant hours for compliance. You have computers. Everything is accessible from your end. If you expect that level of compliance and reporting in spite of having all that accessible, it is fair for us to expect a similar level of excellence from our banking system too! As we grow, it is too tempting to move a portion of our business to an American entity or float a separate firm in Singapore or some place just to avoid this redtapism and inefficiency. We don’t want to do that. That’s why we chose to stay in India rather than move away in spite of having ample opportunity to do so. Allow us to do what we do best — harness our nation’s potential and generate revenues. Atleast start such reforms! Not just unilateral ‘reforms’ to make our lives more difficult? Isn’t too much to ask, is it?
