Have a debt problem? Counselling can help

Prapti Deshpande (name changed) a housewife with two school-going children had a happy life, married to a man working for a private company.

About two years ago, her husband met with a serious accident and had to be admitted to hospital for treatment, which lasted over 6 months. To meet the hospitalisation expenses, Prapti utilised credit cards offered to her by three banks and also personal loans from credit societies. Unfortunately, her husband expired soon after. The only earning member of the family was no more. By this time, the Deshpandes’ debts had ballooned to Rs 4 lakh.

Prapti had trouble meeting even day-to-day expenses. She moved back with her parents; her father is a retired government employee.

Then, the recovery agents began to call. They started harassing not only Prapti, but also her parents. The situation became unbearable, and Prapti, looking for a way out, approached a private debt counsellor after seeing an advertisement in the newspaper.

The agency agreed to take up the matter, but asked her to first deposit Rs 10,000.

Prapti, who was finding it difficult to make both ends meet and was barely able to pay her children’s school fees, could not go back to the agency. Some of her friends then advised her to approach the counselling centres started by banks. She visited Abhay. There, the counsellors gave her courage to face the situation and helped her take up the matter with the concerned banks.

The lenders were told of her situation and assured that Prapti was ready to pay all creditors proportionately, but that they would have to wait for her husband’s accident claim to be settled.

This approach brought her solace and recovery agents aren’t banging on her doors anymore. Prapti is hopeful of coming out of the debt soon and now wants to lead a normal life.

So, is there a solution to such cases, where people are caught in a debt trap for reasons not necessarily of their own making ? And where exactly should such people go get their problems solved?

That’s how bank credit counselling centres came into being.
Over the years, commercial banks have turned their focus from traditional need-based lending to a broad based portfolio. Retail lending became an important portfolio. There has been a rapid growth in consumer loans, credit cards and personal loans.

Credit growth in the three segments grew at a compounded annual growth rate (CAGR) of 43.3% during 2001-2006, compared with overall credit growth of 23.4%.

Meanwhile, banks have always undertaken various activities under the corporate social responsibility. Y V Reddy when he was governor of the Reserve Bank, had expressed his views for establishing credit counselling centres during his speech on the occasion of establishing the Banking Codes & Standards Board of India on July 1, 2006.

Bank of India took the initiative and launched the country’s first centre in its centenary year. Abhay Credit Counselling Centre was declared open by RBI governor Y V Reddy on September 7, 2006. Here are some common questions about credit counselling centres, and their answers.

What is the difference between bank-sponsored counselling centres and those run by private players?
Bank-sponsored centres work according to the guidelines given by RBI. They handle cases pertaining to any bank, although the centres are sponsored by a particular bank. In a nutshell, bank-sponsored centres undertake the following activities:

Provide financial counselling through face-to-face interaction as well as through other available media like e-mail, fax, etc

Educate people in rural and urban areas with regard to various financial products and services available from the formal financial sector

Make people aware of the advantages of being connected with the formal financial sector

Formulate debt restructuring plans for borrowers in distress and help in taking up the matter with concerned banks

The private players take up cases of individuals who are facing problems relating to payment of their outstanding dues and charge a fee for their services (i.e. only a part of the last point mentioned above).

Bank-sponsored centres do not charge any fee, whether for counselling, drawing a debt management plan and or seminars arranged for educating the masses. All services are free of charge.

Where can I find a centre?
The RBI has asked banks to open financial literacy and credit counselling centres in all districts of the country.

A list of places where the centres are established is available on the website of the concerned bank. Some centres, such as Abhay and Disha have their own websites, which give details about address, hours of functioning, etc.

How many centres are operational?
There are 154 such centres available to the people in different parts of the country.

Are these centres an extension of the recovery machinery of banks?
Since the centres have been sponsored by the banks, it is natural that people are skeptical of its working. The initiative of RBI in giving directions to banks for establishing the centres is really appreciable The RBI has given clear-cut guidelines about the role of these centres — they are not expected to act as investment advice centres or marketing centres for products of any bank.

Counsellors are to refrain from marketing/ providing advice regarding investment in insurance policies, investment in securities, value of securities, purchase/ sale of securities, etc, or promoting investments in the bank’s own products.

They need to maintain an arm’s distance from their sponsor bank and should take up cases pertaining to any bank.

Thus, the centres are not an extension of the recovery machinery. They handle cases pertaining to any bank and most importantly the centres do not charge any fees for the counselling services.

To clarify my point, Abhay Mumbai has handled nearly 3,000 cases so far, but has received just only one case pertaining to its sponsor, Bank of India.

To fund these centres, banks have established separate trusts under the corporate social responsibility measures, with the corpus being donated from the sponsoring bank.

The clients who approach these centres feel secure that they are
at the right place as counsellors generally are retired bank officials who have sufficient experience in working at various senior positions.

What cases are being handled by the centres in urban areas?
The common types of cases are:

Misutilisation of credit card after it is blocked

Harassment continues even after payment of amount agreed under settlement

Credit card not applied for, yet statement is received and persons are asked to pay due amount

Statement received after due date for payment, and even after payment the client is charged a late  fee

Card is issued as free for life time, yet annual charges are levied

ECS instructions are not stopped after payment of full dues, yet the account continues to be debited for some charges/ loan installment

Loan is in the name of expired person but son/ daughter/ wife is harassed to pay the dues

No card is issued but clients account debited under banker’s right of lien and setoff

Blatant violation of code of conduct by the recovery agents, etc

In ultimate analysis, the counselling centres established by the trusts sponsored by Banks are reliable, non-profit organisasations manned by experienced retired bank officers who are acting as an impartial judge to help the clients without any fee.

The writer is a chief counsellor, Abhay credit counselling, a Bank of India initiative