INDIA: Reserve Bank wants counselling centres for borrowers

MUMBAI (The Hindu Business Line), April 3, 2008: Bank customers may soon be able to negotiate for settling their debts using the expertise of banks themselves. The Reserve Bank of India (RBI) has suggested that banks should set up financial literacy and credit counselling centres, which can help borrowers in negotiating with banks for restructuring debts. While these centres may initially be funded by banks, banks should maintain an arms-length relationship with the centres, said the RBI. In a concept paper, issued on Thursday, the RBI said that banks can set up Financial Literacy and Credit Counselling Centres (FLCCs). Banks may set up trusts or societies for running these FLCCs. While the FLCC may include respected local citizens on the board of such a trust, the RBI has warned that serving bankers should not be included in the board. Objectives The centres should provide information about various financial products and services, face-to-face financial counselling services, education on responsible borrowing and offering debt counselling to individuals. But the centres should not act as investment advice centres nor should they involve themselves in recovering and distributing money, the RBI said. A senior official from a public sector bank said, “What happens now is that larger customers manage to get better rates, but retail borrowers do not get such advantages. While customers may not be able to bargain with banks in case of settling home loan dues, in case of credit card dues it may be possible. Many times, customers are charged heavy penalties even if the dues are small. In such cases, it is possible that such centres can help with the settlement.” Separate entity Even if these centres are located in a bank’s premises for saving on cost, it should be kept completely separate, said the RBI. “The idea is that these centres should not be perceived as a recovery or marketing agent of the bank concerned, and bank clientele, even of other banks, should feel comfortable in voluntarily approaching the centres,” the RBI said. While initially banks can help fund these centres, once the system stabilises, the centres could cover part of the cost by levying nominal charges on the banks whose borrowers have commenced repayments due to the credit counselling and debt management plan drawn up by the counselling centre. Training counsellors The RBI also said that proper training and skill upgradation is essential for the counsellors to keep themselves abreast of the latest developments in the banking industry. To ensure a regular supply of trained counsellors, specialised courses on credit counselling and debt management can be conducted by the Indian Institute of Banking & Finance or other institutions, said the RBI. Copyright © 2008, The Hindu Business Line.