Buried under debt? Credit counsellors can find you a way out

OVER the past few years, factors like rapidly changing lifestyles and easy availability of credit have resulted in many individuals borrowing beyond their limits to fund their consumption needs. And, with interest rates continuing their skyward march, such borrowers’ plight is likely to worsen in the coming days.

If you are among those feeling the weight of debt, you shouldn’t hesitate to seek professional help to tide over the crisis. At present, borrowers struggling with repayments can turn to financial planners who can chart out the path to freedom from debt for a fee or credit counsellors who do not seek any compensation for the services rendered. The idea is to spare the already-burdened debtors of further expenses, thus making it an ideal method for debt resolution.

Recognising the importance of such centres, the Reserve Bank came out with a concept paper on financial literacy and credit counselling centres (FLCC) in April this year, and is expected to take further action on the report based on the feedback received from the public. FLCCs are encouraged not only to provide curative advice, ie, debt resolution remedies, but also preventive counselling, that is, educating the borrowers on their repayment capacity, cost of credit and so on before they apply for loans.

Several banks have come forward to set up FLCCs to lend a helping hand to distressed borrowers, out of which, the Bank of India-supported Abhay (http:\\www.bankofindia.con/abhay.aspx) and ICICI Bank-backed Disha (http:\\www.dishafc.org) are active in the urban areas, with three and eight centres, respectively. These entities provide counselling to all borrowers who approach them, irrespective of the bank they have taken the loan from.

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Typically, credit counselling centres are manned by retired bank officers, as they are believed to be well-equipped to understand both the borrowers’ and banks’ perspectives and hence, better placed to come up with a mutually acceptable solution. Debt restructuring packages, designed by credit counsellors, are bound to carry more weight than those chalked out by the debtors themselves.

You can get in touch with the centre closest to your house and set up a one-on-one meeting with the counsellor who will devise a debt restructuring plan after taking into account your financial situation and repayment capacity.

While the plans could vary as per these and other parameters, they generally entail waiving penal interest or even a part of regular interest and other charges to arrive at a sum that you would be able to repay in installments at a reasonable rate of interest. “Implementing a mutually agreed upon debt restructuring plan could be a win-win situation for both the parties. Banks will be spared of the need to spend additional money on recovery efforts.

Also, they will not stand to lose much as such plans will not involve any write off of the principal amount,” reckons VN Kulkarni, head of Abhay Credit Counselling Centre.

However, although it has been two years since the first credit counselling centre was set up in India, the concept is yet to take off, promarily due to lack of awareness and to an extent, the stigma associated with acknowledging one’s inability to service the loan.

But borrowers have to realise that approaching a credit counsellor is a better option than taking the legal route. Also, with the Credit Information Bureau of India Ltd (CIBIL) becoming proactive in the recent months, wilful defaulters will find it difficult to get away with non-payment of dues. Banks have started reporting such defaulters to CIBIL, thus denting their chances of securing loans in the future. Compared to finding yourself stuck in such embarrassing situations, enlisting the help of a credit counsellor is certainly a respectable alternative.

Lack of awareness apart, lender banks’ contention that counsellors do not have ‘locus standi’ in the matter – a fact acknowledged by the concept paper – is another hurdle. In spite of the obstacles, the fact that number of such centres are growing, albeit not at a great speed, is an indication that they have had some success in providing relief to indebted individuals.

“The number of people visiting Abhay has been increasing steadily,” informs Mr Kulkarni. Adds B Madhivanan, senior general manager, ICICI Bank: “We are now seeing a trickle of people visiting our centres owing to the pressure of debt burden and awareness of FLCCs. With RBI giving thrust to this movement, we see a significant role for FLCCs in the development of financial markets.”