Last month, 46-year-old Vipin Handa, deep in debt after exceeding the credit limit on his card by Rs1 lakh—for Diwali purchases—and an emergency surgery that cost him Rs2 lakh, called his card issuer Citibank NA to tell them that he was in a financial mess and couldn’t pay his credit card bill for three months starting January.
Right direction: People walk past a branch of Citibank in Mumbai.
The bank gave him a payment holiday for three months and increased the period over which he could pay his dues (although it suspended the use of his card for the three months to ensure that Handa does not overdraw even more). Handa was the beneficiary of a credit counselling initiative launched by Citi in November —the bank has a link on its website called “use credit responsibly”; anyone who clicks on this is taken through a small quiz to ascertain his or her financial health, following which counselling is offered.
Banks such as Citi are now trying innovative methods to address the issue of credit card and loan defaults differently, rather than use heavy-handed recovery agents, a practice that has landed some banks in a lot of trouble. Bank of India, Dena Bank, Union Bank of India and ICICI Bank Ltd are all encouraging potential defaulters to use credit counselling centres set up by them.
State-owned Union Bank has constituted “Union Mitr” to provide financial education services and debt counselling, especially to people in rural areas. Union Mitr (Mitr is friend in Hindi) is a free service, and the bank has already established 51 village knowledge centres to offer this counselling service. Another Mumbai-based lender Dena Bank has also established credit counselling centres in villages.
ICICI Bank, India’s top private sector lender, has a credit counselling initiative Disha and now runs eight Disha centres countrywide; the Disha website (www.dishafc.org) offers a credit counselling quiz akin to the Citi one.
B. Madhivanan, deputy general manager and head of customer service at ICICI Bank, however, says that an online credit counselling service might not work as well as on offline one. “Most of the people who run into trouble, are not that Net savvy.” An online service, he says, will only provide solutions to “high-end customers and not to the lower middle class that has been overexposed?to?credit?options”.
Citi, however, says the online service works better as it allows the customer the convenience of sitting at a computer terminal and be counselled. And users have the option of calling a toll free helpline and reaching a counsellor.
Most banks and counsellors offer to extend loan or credit card payment tenures, and offer suggestions on how customers can manage their finances. For instance, when 20-something Navin Ragade overspent on his card, took on a loan to make his card payments and found himself in a debt trap, he called Citibank, which directed him to a counsellor, who helped him work out a mutually acceptable repayment plan. Vijay Ramchandran, marketing director, Citibank India, says that the bank’s online quiz and counselling service has had 25,000-30,000 hits in December.
The bank, he adds, “is encouraging people to talk to their respective lenders in case of a problem”. He says that most people when faced with a financial crisis regarding use of credit “tend to run away from the problem, despite having all good intentions of paying”. Ramachandran says his bank is making an effort to help these borrowers, who “do not know what went wrong”.
A senior counsellor at ABHAY, India’s first credit counselling centre set up by a trust created by public sector Bank of India, says individual centres of banks will add to the woes of customers, who have multiple sources of credit. There should be an apex body that can help them with their financial problems, he adds.