Loan distribution companies, popularly known as direct sales agents, or DSAs, accurately mirror the stark contrasts that define India.
On one end of the spectrum are large operators such as Andromeda, present in several cities, employing hundreds and thousands of agents and associations with almost all leading banks. On the other end are small and local operators as well as individuals. This makes it a truly mixed bag of operators.
In the absence of entry barriers, new DSAs come up almost daily, with the employees of existing DSAs starting their own outfits after gaining experience. Banks are more than happy to work with them as it means bringing more loan seekers into their fold.
In the absence of any regulation or guidelines for DSAs, besides zero entry barriers, the industry is rife with dodgy practices today. Customers are facing a number of issues—from false promises made by salespersons on the ground to false commitments on disbursements and even unclear interpretations of terms and conditions.
The industry has no quality standards on who can be employed, nor are there any formal training standards or a proper grievance redressal mechanism. Professional DSAs—yes they do exist and are slowly making a mark for themselves—also face an issue. Unlike many of their brethren, they do not want to make false promises just in order to somehow get a prospect into their net.
The industry has already grown to a formidable size, employing an estimated 100,000 people. DSAs account for a double-digit percentage of total retail loan disbursement in the country. Proper regulation will ensure that it grows and remains a vibrant industry that helps spread the reach of the banking sector and provides gainful employment opportunities to many youngsters.
The DSAs that we spoke to welcomed the idea of regulation, though they also said it will add to the cost of operations. But ultimately the industry will gain respectability by attracting better talent and increasing business volumes.
Customers will also welcome a regulatory regime and a centralized grievance redressal mechanism, where they can check the credentials of the DSA they are going to deal with.
There have been sporadic efforts to bring some order to the chaos. The National Housing Bank (NHB) brought out a discussion paper for a certification course in home loan counselling and providing for compulsory accreditation to a lenders’ forum that could also act as a grievance redressal mechanism. This does not seem to have elicited any response so far. After all, the NHB writ runs only among housing finance companies, which form a small portion of the overall retail lending business dominated by banks and non-banking finance companies.
Larger DSAs have tried to form their own association a couple of times, when specific issues—such as reimbursement of service tax by the lenders in 2004—have cropped up. But these baby steps have not been followed up.
Clearly, only the Reserve Bank of India (RBI) can ensure that the industry becomes more organized. A good first step would be to make regulations prescribing minimum qualification criteria, including an entrance test, and continuous training and upgradation of skills. Without this, lenders should not be allowed to appoint a DSA. A self-regulatory organization can then be formed for everyone who passes these exams, which will help maintain the standard of its members.
It is a fact that the industry has grown to its current size on the sheer entrepreneurial spirit of Indians. But it now needs a semblance of order and regulation to go forward. Possibly, the DSAs themselves can try and build a self-regulatory organization.
I hope that taking cognizance of the scenario discussed above, RBI and NHB will initiate work in this direction in 2011.
Harsh Roongta is CEO, Apnapaisa.com.