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Taking into consideration the economic slowdown and its consequences vis-à-vis the job market, some banks have expressed their willingness to re-schedule repayments of student loans and even some home loans. While that is certainly good news, far more needs to be done to help customers who may face difficulties in repaying loans, including personal loans and credit card debts.
That help should come in the form of independent, credible and accessible credit counselling centres that assist clients in managing their debts better. In fact the government should have promoted and encouraged such credit counselling when it opened the banking sector to private and foreign banks, which aggressively marketed credit and credit cards. The consequences of such inaction can be seen in the large number of complaints pertaining to illegal recovery and harassment of consumers by banks. While easy loans and credit cards prompted more and more clients to resort to debt to finance their purchases, including vehicles and consumer durables, there was no credit counselling or client education to prevent customers from borrowing more than what they could repay. There was also no help to those who defaulted on account of certain circumstances beyond their control such as sudden loss of employment or unexpected medical emergencies. This also resulted in many suicides in urban areas. In the last few years, a few banks have started credit counselling, but that is not adequate. For credit counselling to be truly meaningful, it should be easily accessible, effective and should not only be independent but also seem to be so. Interestingly, an internal group constituted by the RBI to study credit counselling initiatives of some banks made three important points: (1) counselling centres faced a major constraint in that there was no credence attached to the references made by them to the banks on the ground that they had no locus standi. The centres, therefore, had to be empowered to mediate and negotiate with the banks on behalf of the customers seeking counselling; (2) there was need for an appropriate fire wall between a bank and the counselling centres or else these may well be perceived as debt collection wings of banks; (3) need for committed, well-trained personnel and appropriate bench-marked quality standards and a system of accreditation of counsellors. In fact, given the present scenario where consumers are facing retrenchment, salary cuts and similar problems affecting their repayment schedules, adequately empowered, free and easily accessible credit counselling centres are urgently needed. Besides counselling clients, these centres should be empowered to negotiate with banks, financial institutions or credit card companies on their behalf and work out reduced interest rates.
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