Credit Counseling for Responsible Retail Banking

7/31/2019 Credit Counseling for Responsible Retail Banking

1/12

CreditCounselingforResponsibleRetailBanking

PresentedBy:AkankshaPandey

AmritanshGupta

DebashreeMohapatra

DilipMonson

IshitaSingh

PrateekBansal

NavneetKumar

SubhananSahoo

7/31/2019 Credit Counseling for Responsible Retail Banking

2/12

WhatisCreditCounseling?

CreditCounselingisaprocessthatoffersguidancetoconsumersaboutcredit,budgetingandmoneymanagement.

It offers education to consumers about how to take informed

decisionsonvariousproductsavailableandavoidincurringdebtsthatcannotberepaid.

With the changing growth dynamics of the economy, certainsegments of the population becomes susceptible to excessiveborroweroptimism.

ACreditcounselor:

Provides soundadvice to arrest the deterioration of the income andrestructurestheirdebt

Offersasolutionforborrowerstograduallyovercomethedebtburden

andimprovetheirmoneymanagementskills

7/31/2019 Credit Counseling for Responsible Retail Banking

3/12

History

First credit counseling agencies, National Foundation forCredit Counseling(NFCC),werecreatedin1951intheUnitedStates.

UrbanDevelopmentAct in1968allowedtheUSDepartmentofHousingand

UrbanDevelopment toauthorize publicand privateorganizations toprovidecounselingtomortgagors.

AssociationofIndependentConsumerCreditCounselingAgencies(AICCCA)founded in the US in 1993, citing a need for industry-wide standards ofexcellenceandethicalconduct.

Now many countries have undertaken significant initiatives towards credit

counselingsuchas: TheConsumerCreditCounselingService(CCCS)inUK

CreditCounselingCanada(CCC)inCanada

CreditCounselingandDebtManagement(CCDM)inMalaysia

CreditCounselingofSingapore(CCS)inSingapore

7/31/2019 Credit Counseling for Responsible Retail Banking

4/12

IndianContext

InIndia,therehasbeenasharpgrowthincredittohouseholdinrecentyears.

Atend-March2004,thetotalnumberofloanaccountsunderdirectfinancetofarmers was nearly 20 million, comprising over 95% of total number of loanaccountsundertheprioritysector

Theproportionofpeopledependentonagriculturestillremainshigh.

Organized sector employment presently comprises less than 10% of theworkforce, leaving the vast majority of the working population with irregularincomestreams.

Thepenetrationofformalfinanceislessthanadequate,presumablycompellingpeople to take recourse to costly informal finance, often in conjunction withloansfrombanks.

7/31/2019 Credit Counseling for Responsible Retail Banking

5/12

IndianContext(Contd.)

Intheabsenceofconsistentcredithistories,banksareoftenatalossincaseofnon-repaymentbyborrowers

There is an increasing need to develop follow-up services to enable

distressedborrowersovercomecreditdelinquencies Credit counseling thus offers a viable task-specific, advisory ad hoc

intermediarybetweentheborrowerandthebankconcerned.

Itexamineswaystosolvecurrentfinancialproblems

Bycreatingawarenessaboutthecostsofmisusingacredit, itimprovesfinancial

managementanddevelopsrealisticspendingplans. Itadvisesthedistressedpeopletogainaccesstothestructuredfinancialsystem,includingbanking

7/31/2019 Credit Counseling for Responsible Retail Banking

6/12

DebtManagementPlan

OftencreditcounselingofferseducationtoconsumersabouthowtoavoidincurringdebtsthatcannotberepaidthroughestablishinganeffectiveDebtManagementPlan

WhatisaDebtManagementPlan?Thedebtmanagementplanisexclusivelydesignedtoprovideindividualswithauniquesolutionforyourfinancialsituation.

Professionallytrainedandindependentlycertifiedcounselorswill: Evaluateyourfinancialsituation

Assistyouincreatingabudgettohelpmanageyourfinancesanddebt.

Andworkwithcreditorsforapossiblereductionin:financecharges,latefeesand/orover-limitcharges,monthlypaymentsandtimetopayoffdebt.

7/31/2019 Credit Counseling for Responsible Retail Banking

7/12

Advantages

Thedebtmanagementcompanyhelpsevaluateyourcurrentfinancialsituation.Ittakesintoaccounttheinterestratesonyour

bills,totalamountyouoweandtheminimumpaymentoneachaccount

Onceyouenrollwithadebtmanagementservices,thecompanyworksonyourbehalftolowertheinterestratesandmonthlypaymentstoyourcreditors.

:Thedebtmanagementcompanyworksoutarepaymentplanwithyourcreditorssothatyoucanpaybackyourbalances.

You'llmakeasinglemonthlypaymenttothecompany.Thecompanythendisbursesthepaymenttoyourcreditors.

7/31/2019 Credit Counseling for Responsible Retail Banking

8/12

Example

UncleSamhas , .

Theinterestrateononecreditcard:15%

Theinterestrateontheothiscreditcard:25%Theinterestrateonthepersonalloan:20%

So,theaverageinterestrateis=(15%+25%+20%)/3=

Theoutstandingbalanceonthefirstcreditcard:$15,000

Theoutstandingbalanceonthesecondcreditcard:$12,000Theamountowedonpersonalloan:$13,000

So,thetotaldebtamountis=$15,000+$12,000+$13,000=

7/31/2019 Credit Counseling for Responsible Retail Banking

9/12

UncleSamentersintothedebtmanagementplan.

UncleSamcombinesthedebtsintoasinglemonthlypaymentatinterestrateof8%.

IfUncleSam'spaymentsbeforethedebtmanagementplanwerebasedon3%ofmonthlybalanceandsheweretomakeonlyminimumpayments,shewouldbepayingthe$40,000.00balanceplusanotherroughly$49,000.00ofaddedinterest.Itcouldtake376monthsforUncleSamtopaythetotal$89,000.00

InthedebtmanagementplanUncleSamhasreducedhiscombinedinterestratesdownto8%andwillbebilledusinga2%ofbalanceformula.hispaymentwillbe$800.00eachmonth.Shewillhavepaidlessthan$10,000.00ininterestandwillcompletehisdebtrepayment

planinabout60months.

7/31/2019 Credit Counseling for Responsible Retail Banking

10/12

Non-profitDMP

Nonprofitdebtmanagementcompaniesfunctionjustlikethefor-profitmanagementfirms.Akeydifferenceisthatthenonprofitcompaniesusuallydon'tpaytaxestotheIRSandtheyreceivefinancialhelpfromthecreditorswhomtheyarepayingonyourbehalf.

Herearethekeybenefitsofanonprofitdebtmanagementprogram: Providesyouwithafreecounselingsession

Helpsyoucreateabudget

Createsafinancialplanforrepayingbills

Haveexistingrelationshipswithyourcreditors

Loweryourinterestrate

Waivelatefeesandpenalties

Helpstoloweryourmonthlypayments

Re-ageyouraccounts

Reducescollectioncalls

Nonconfrontationalapproachtodebtrelief

7/31/2019 Credit Counseling for Responsible Retail Banking

11/12

CurrentScenario

ReserveBankcameoutwithaconceptpaperonthesubjectandFinancialLiteracyandCreditCounseling(FLCC)centersinApril2008.

Thesecenterscouldbeagreatresourceforloanapplicantsasafinalstepin

theirresearchbeforetheyzeroinonthekindofloantheyneed.

BankofIndia-supportedAbhay(http:www.bankofindia.con/abhay.aspx)and

ICICIBank-backedDisha(http:www.dishafc.org)whohaveabunchofsuchcounselingcenterswhereyoucansetupameetingwithexpertstotakeacallonaproblemyoumayhavewithrepayingyourloanoracounselingsessiontoarriveatthebestoptiontomanageloans.

7/31/2019 Credit Counseling for Responsible Retail Banking

12/12

ThankYou