Credit Counseling for Responsible Retail Banking

Presented By :
Akanksha Pandey Amritansh Gupta Debashree Mohapatra Dilip Monson Ishita Singh Prateek Bansal Navneet Kumar Subhanan Sahoo

certain segments of the population becomes susceptible to excessive borrower optimism.What is Credit Counseling ? • • Credit Counseling is a process that offers guidance to consumers about credit. • A Credit counselor: – – Provides sound advice to arrest the deterioration of the income and restructures their debt Offers a solution for borrowers to gradually overcome the debt burden and improve their money management skills . budgeting and money management. Why is Credit Counseling important? • With the changing growth dynamics of the economy. It offers education to consumers about how to take informed decisions on various products available and avoid incurring debts that cannot be repaid.

Now many countries have undertaken significant initiatives towards credit counseling such as:     The Consumer Credit Counseling Service (CCCS) in UK Credit Counseling Canada (CCC) in Canada Credit Counseling and Debt Management (CCDM) in Malaysia Credit Counseling of Singapore (CCS) in Singapore . National Foundation for Credit Counseling (NFCC). Association of Independent Consumer Credit Counseling Agencies (AICCCA) founded in the US in 1993. were created in 1951 in the United States . Urban Development Act in 1968 allowed the US Department of Housing and Urban Development to authorize public and private organizations to provide counseling to mortgagors. citing a need for industry-wide standards of excellence and ethical conduct.History • • • • First credit counseling agencies.

presumably compelling people to take recourse to costly informal finance. comprising over 95% of total number of loan accounts under the priority sector The proportion of people dependent on agriculture still remains high. . there has been a sharp growth in credit to household in recent years. The penetration of formal finance is less than adequate. leaving the vast majority of the working population with irregular income streams. often in conjunction with loans from banks. At end-March 2004. Organized sector employment presently comprises less than 10% of the workforce. the total number of loan accounts under direct finance to farmers was nearly 20 million.Indian Context • • • • • In India.

 It advises the distressed people to gain access to the structured financial system. advisory ad hoc intermediary between the borrower and the bank concerned.Indian Context (Contd.) • • • In the absence of consistent credit histories. it improves financial management and develops realistic spending plans.  It examines ways to solve current financial problems  By creating awareness about the costs of misusing a credit. banks are often at a loss in case of non-repayment by borrowers There is an increasing need to develop follow-up services to enable distressed borrowers overcome credit delinquencies Credit counseling thus offers a viable task-specific. including banking .

Debt Management Plan Often credit counseling offers education to consumers about how to avoid incurring debts that cannot be repaid through establishing an effective Debt Management Plan What is a Debt Management Plan ? The debt management plan is exclusively designed to provide individuals with a unique solution for your financial situation. Professionally trained and independently certified counselors will: • • • Evaluate your financial situation Assist you in creating a budget to help manage your finances and debt. . monthly payments and time to pay off debt. late fees and/or over-limit charges. And work with creditors for a possible reduction in: finance charges.

 Single monthly payment: You'll make a single monthly payment to the company. the company works on your behalf to lower the interest rates and monthly payments to your creditors.  Suitable repayment plan: The debt management company works out a repayment plan with your creditors so that you can pay back your balances.Advantages  Analysis of your finances: The debt management company helps evaluate your current financial situation. . The company then disburses the payment to your creditors. total amount you owe and the minimum payment on each account  Negotiation to lower interest rates: Once you enroll with a debt management services. It takes into account the interest rates on your bills.

000 .000 The amount owed on personal loan :$13. The interest rate on one credit card : 15% The interest rate on the othis credit card : 25% The interest rate on the personal loan : 20% So. the total debt amount is = $15.000 So.000 The outstanding balance on the second credit card : $12. 1 Personal loan.000 + $13.Example Uncle Sam has 2 Credit Card.000 + $12. the average interest rate is = (15% + 25% + 20%)/3 = 20% The outstanding balance on the first credit card : $15.000 = $40.

000.Uncle Sam enters into the debt management plan.00 in interest and will complete his debt repayment plan in about 60 months.000. Uncle Sam combines the debts into a single monthly payment at interest rate of 8%. .00 balance plus another roughly $49.000. If Uncle Sam's payments before the debt management plan were based on 3% of monthly balance and she were to make only minimum payments.00 each month. She will have paid less than $10.000. his payment will be $800.00 of added interest. she would be paying the $40. It could take 376 months for Uncle Sam to pay the total $89.00 In the debt management plan Uncle Sam has reduced his combined interest rates down to 8% and will be billed using a 2% of balance formula.

Here are the key benefits of a nonprofit debt management program: – – – – – – – – – – Provides you with a free counseling session Helps you create a budget Creates a financial plan for repaying bills Have existing relationships with your creditors Lower your interest rate Waive late fees and penalties Helps to lower your monthly payments Re-age your accounts Reduces collection calls Non confrontational approach to debt relief .Non-profit DMP Nonprofit debt management companies function just like the for-profit management firms. A key difference is that the nonprofit companies usually don't pay taxes to the IRS and they receive financial help from the creditors whom they are paying on your behalf.

aspx) and ICICI Bank-backed “Disha”( who have a bunch of such counseling centers where you can set up a meeting with experts to take a call on a problem you may have with repaying your loan or a counseling session to arrive at the best option to manage loans.con/abhay.Current Scenario • Reserve Bank came out with a concept paper on the subject and Financial Literacy and Credit Counseling (FLCC) centers in April 2008.bankofindia. Bank of India-supported “Abhay” (http:www. These centers could be a great resource for loan applicants as a final step in their research before they zero in on the kind of loan they need. • • .

Thank You .

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