Loan Repayment : Perspectives from ancient times to current.

“Whether an individual should repay his personal loan with utmost sincerity?” was the question posed to me by my niece, Ayesha, who is pursuing her C.A. ( Final). She had heard the story from her grandmother when she was a tiny tot that normally people prefer to settle their personal loan during their life time lest they have to be reborn as a green chilly herb plant in the garden of the person from whom they had borrowed. She wanted me to clarify as to whether there was any basis for this story told to her during her childhood days in our culture or was it merely a figment of imagination of elders to inculcate good values in children? This curiosity arose in her mind in the wake of recent high profile cases of default by business man & former Member of Parliament, Vijay Mallya and business men Nirav Modi and Mehul Choksi.

I invited Ayesha's attention to the Economic Survey of 2018-19, which was tabled in Parliament in July 2019 where tenets of Hinduism, Islam and Christianity had been cited extensively to tackle debt woes and tax evasion. In Hinduism, non- payment of debts is a sin and also a crime. As per Hindu scriptures, if a person's debts are not cleared and he dies in a state of indebtedness, his soul may have to face evil consequences. Therefore, it is the duty of his off-spring to save him from such evil consequences. This duty or obligation of a child to repay the debts of the deceased parent is rested upon a special doctrine, known as the “doctrine of pious obligation”.

In Islam, Prophet Muhammad advocated, “Allaahummainnia'oodhibika min alma'thamwa'lmaghram ( O Allah, I seek refuge with You from sin and heavy debt)”. A person cannot enter Paradise until his debt was paid off, as per the Economic Survey cited above. All of his wealth could be utilised to settle the debt and if it is insufficient then one or more heirs of the deceased could voluntarily pay for him.

Quoting Bible, the survey said, “Let no debt remain outstanding except the continuing debt to love one another – Romans 13:8” and “The wicked borrows and does not repay, but the righteous shows mercy and gives – Psalm 37:21”.

Chanakya ( Kautilya), a great scholar, economist and political scientist, had said 2400 years back that sons should pay with interest the debt of a deceased person or co-debtors or sureties. Was a spouse, i.e., husband or wife, responsible to pay for the debts incurred? The answer is : Yes , and no. Wife was exempted from the debt burden of her husband if she had not given her assent to his borrowings. However, for the debt incurred by a wife, her husband was liable for repayment.

Thus, in our culture as well as religious beliefs, strong emphasis has been laid on loan repayment and not to default.

After this our discussion got fast forwarded to the present times. Ayesha told me that being a student of Commerce and a professional course like Chartered Accountancy, she is aware that contracts between the lender and the borrower are to be honoured. She is also aware that various documents obtained by the lender like loan agreement, proof of loan disbursement etc. are legally enforceable documents. She was of the view that certain high profile borrowers as mentioned above by their wilful act of default have created a sense of insecurity and mistrust in the mind of lenders which may create some impediments for genuine borrowers in the shape of additional scrutiny and tougher covenants, which may not augur well for business enterprises.

Ayesha then asked to me explain what happens if a person who has availed unsecured personal loan does not repay. My answer to this revolved around following points: A person who does not repay his loan, even though unsecured, becomes a defaulter in the credit bureau database. The consequence is that he can not avail loan from any other regulated financial entity due to his low credit score, for both unsecured ( Credit Card, Personal Loan) and secured products like Two wheeler Loan, Car Loan, Consumer Durables Loan, Home Loan etc. Some responsible Corporates are also checking the Credit Bureau Database to ensure that their would-be employees are trustworthy and are not defaulters with any financial institution. If the concerned financial institution sells the concerned loan as a portfolio to any professional asset resolution company, the concerned defaulter may have to endure tough collection processes. Further, if the concerned lender decides to proceed legally against the defaulting borrower and pursues the case to its logical conclusion, the concerned borrower may be ordered by the court to repay the loan along with interest plus legal cost incurred and/or undergo imprisonment. Further if a person passes away before repaying an unsecured loan, the lender can recover the same from the legal heirs to the extent of assets inherited from the deceased borrower.

So the sum and substance is that loans availed, need to be repaid, whether it is secured or unsecured. In ancient times, it was a part of our culture, irrespective of religious preferences. In the present age, it is a part of our civil as well as legal duty. In case, a person defaults in loan repayment, he has to suffer the consequences of the same, as outlined in the previous paragraph. The best way out for a borrower is to get in touch with his lender in case he foresees any difficulty in meeting repayment obligations and draw up a revised schedule in concurrence with the lender rather than absconding and becoming a confirmed defaulter.

"(Dr. Manas Ranjan Pani, is a banking and finance sector professional with more than 3 decades of experience in Retail Banking, Corporate Banking, SME, Stress Assets Management, Financial Inclusion, Banking Operations, Risk Management, Training & Development. Presently, he is a Visiting Professor in Xavier School of Commerce, Xavier University, Bhuaneswar, Odisha , India.)"