2021 July

July, 2021

Dear Friends

Is ensuring Ease of Doing Business, the responsibility of only the Government ? Is it not of other players in the ecosystem too ? Is EODB ranking only on the basis of ease of entering a country for business ? Is it not for continued ease during an enterprise’s entire lifecycle as well ? Why am I bringing up such basic questions when the answers seems obvious ? Because the experience seems otherwise, as shared by many company founders and professionals. Today I am focussing on the banking experience at a fundamental level – just opening a bank account and normal operations. No complex services expected from a bank when you start a company but read on to understand the ground reality through the eyes of a company founder.

Venkat and Varadan, 2 brothers, one an accomplished scientist and another a seasoned banker decided to set up a startup to offer some innovative cutting-edge technology products. Varadan, the retired banker was insistent that the new company bank only with his ex-bank which he had loyally served for several decades as an employee. He would not hear of any new-age bank that was listed in the incorporation forms. Unfortunately though many banks are listed in the Spice+ form, only a handful are actually actively available to select from. His PSU bank was one such though its name appeared in the dropdown list. The intention of the Government is to enable a company to start functioning from day one by offering banking options at the time of incorporation itself. In this case his dear bank was not activated (perhaps technology back-end not tied in with the MCA portal). When we suggested that he cannot bank with his ex-employer because of ‘tech reasons’ he lost his cool demanding how can the Government force me to choose a bank that I am not comfortable with. It took us quite sometime to calm him down and offer a work around – choose any other bank, get the account number allocated but don’t complete the paper work. The account will not get activated. After incorporation you can choose a fresh bank of your choice and approach them for opening a bank account. He was quite upset with the round about process but agreed since choosing a bank in the Spice+ form is mandatory. This option remains a tick-box activity, unless all the listed banks are tied in and available for use. Not sure why the gap exists even after 1+ years of introducing a modified Spice+ form. The unduly long time taken to open a bank account continues with innumerable documents to be signed ! Without a bank account, company cannot commence business !

In another case Rahul, one of the directors stays abroad. But one of the private sector banks the company chose is insisting on signature by both the directors in the account opening form. This despite the board resolution clearly authorising the resident Indian director to sign and complete all account opening formalities. It is a chicken and egg story that without bank account things will not move and to open the account, papers have to be signed by the non-resident director also and sent back in hard copy to the bank. Imagine the loss of time and money in all this – just for opening a bank account! As an alternative, the bank insisted that a Practising Company Secretary sign the resolution along with one director, extending the responsibility of the professional. After much discussion, Rahul and Ravi, the co-founders were frustrated and started hunting for a bank that doesn’t insist on multiple signatures !

Another extreme diligence by the banks is to insist on the digitally signed Certificate of Incorporation to be physically signed by the ROC. Little do they know that gone are the days of certified copies from ROC, sealed and signed. It is lack of knowledge of the front end banking representatives who claim to be ‘Relationship Managers’ coupled with unwanted layers of checks and balances imposed by each bank internally. No two banks seem to follow the same steps. Sometimes no two branches also of the same bank leading to confusion, frustration and loss of precious time.

In another case a hapless professional lamented that a well-known private sector bank refused to open a bank account of an LLP because the name of the bank was not mentioned in the LLP Agreement. Somebody else added that the bank official demanded a new certificate of incorporation when the registered office address changed. A simple issue like this needs to be escalated to the so-called ‘informed higher ups’ in the bank through a chain of emails and calls – all because of ignorance of the corporate practices and requirement under law. A lack of appreciation of how the MCA portal works, what can be extracted authentically from it, what is the role of a director, what is his authority, what is the role of PCS, how boards take decisions, how they are recorded, how they are issued to outsiders etc. It is time the bank officials are properly trained and internal documentation processes streamlined.

What I have shared is just the tip of the iceberg. Dive deeper and you will know the over-zealous bankers adding to the difficulty in doing business – is it lack of awareness or lack of trust or an issue of extreme caution or is it really that corporates have taken the banks for a ride ? It may be either one of these or all but for a first time entrepreneur (plenty as of now) it is a nightmarish experience and in most cases, their first brush with a bank is far from satisfactory. Honestly I would like to believe that all that I have written is hypothetical and imaginary …alas it is factual, experiential, true and realtime. EODB has a long way to go and all the players have a role to play !!