Disha, a debt counselling centre, witnessed a steady rise in the number of borrowers coming to them for help. In February, the centre saw 150 customers, a 50 per cent rise compared to the previous month. Bankrupt borrowers or those who are unable to repay seek help through letters, e-mails and personal visits. The centre has been receiving about 100 queries a month. The youngest such borrower to visit the centre was 21 years of age!
These numbers speak for themselves. After a heady bull run, today, many are caught in a debt trap and the fear of unemployment and pay cuts indicates a rough path ahead. What can you do if you are stuck in a situation like this?
Your answer: Debt counselling centres. The Reserve Bank of India took the initiative to launch Financial Literacy and Credit Counselling (FLCC), which has taken the form of debt counselling centres. There are two centres — Disha, which is supported by ICICI Bank and the other, Abhay backed by Bank of India. These centres provide advice on debt remedies, repayment capacity, debt management and so on.
REASONS FOR DEBT TRAP
"Many are in debt due to their careless spending habits. We ask them to discipline their spending and manage assets to pay off debt," says Ashok Kargutkar, a counselor at Abhay. "We guide borrowers who have genuine problems. And if banks and financial institutions are not helpful, we take up the matter with the respective authorities."
Officials at Disha say, "The customers are advised based on how they got into debt trap. Factors taken into account are their present financial situation, genuineness of the borrower and their intention to get out of the crisis."
WHAT FACTORS DO BANKS CONSIDER FOR SETTLEMENT?
Maybe months back banks wouldn't have considered job loss or pay cuts as a reason strong enough. But now, since unemployment is becoming a recurrent phenomenon, banks are taking this into consideration to deal with defaulters.
1. JOB LOSS
If due to job loss or pay cuts, you are not able to pay your dues, banks are willing to offer moratorium period till you get a new job. The repayment will commence once you find a job and are in a repaying capacity.
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2. INABILITY TO PAY
In certain cases, banks are willing to work out a solution, which could be providing a loan against assets such as gold, postal savings, loan against property, etc.
"If a borrower has a genuine inability to pay, due to loss of income, medical problems, family contingencies, we offer repayment solutions based on his/her cash-flows. We customise the repaying solutions addressing both short-term and long-term inability of the borrower in a way that also reduces their overall credit burden." says Citibank.
While these options may look viable, the solution differs from case-to-case and a lot depends on your past record history. So, if you are genuinely caught up in debt, you can knock the doors of debt counselling centres. But nonetheless it pays to practice discipline when spending and consider loan as an option only when it's essential.
WHAT IS THE STANDARD PROCEDURE FOLLOWED?
Step one: The officials from the centres carry out investigation to verify the genuineness of the borrower.
Step two: A format is made for the borrower, which carries details such as the loan amount, amount repaid, assets/savings if any, termination letter in case of job loss, etc. A borrower is required to complete these details.
Step three: The centre then helps the borrower to make requests such as reduced interest rate, longer time to repay the dues or if the case exists, to waive off some portion of the loan. The case is then sent to the respective bank.
Step four: Uptill this stage, the centres only act as support systems and do not get directly involved. However, if the bank remains unresponsive, these centres take up the debt problem with the respective bank to work out a solution.
The services offered by these centres are free of cost and are run by retired bankers or ex-ombudsmen officials. It's not necessary to be a customer of either bank to avail of their services.
While these centres are a breather for those grappling with debt, it's important to note that banks won't forego the entire loan amount. Depending on your situation, the bank will either relax the paying mode for you or the give you a discount on the outstanding amount. The decision totally lies with the bank.
Note: These centres do not guarantee any solution or action taken by the bank.
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