Borrowers to get lessons in debt management

MID-TERM MONETARY POLICY 2008-09/ Policy & The Individual

To counter increasing loan and credit card defaults, RBI has decided to set up financial literacy and credit counselling centres (FLCC) on a pilot basis.

"There has been a rise in defaults after the recent fall in the stock market," said V N Kulkarni, chief counsellor, Abhay Credit Counselling Centre.

According to the RBI data, the total loan outstanding in the retail segment has increased by 17.4 per cent (annually) to Rs 5,52,090 crore. The retail loan segment comprises housing, advance against fixed deposits, credit card, education and consumer durables loans. The credit card outstanding alone has risen by 86.3 per cent annually to Rs 29,056 crore.

A concept paper of RBI on financial literacy and counselling centres too states that there has been rapid growth in consumer and housing loans, credit cards and personal loans. Bank credit to housing, consumer durables and personal loans (including credit cards) in urban and metropolitan areas, which covered 8.71 million accounts and stood at Rs 42,700 crore in 2001, rose to 25.5 million accounts totalling to Rs 2,58,000 crore in 2006, according to the concept paper.

RBI also proposes to start these FLCCs in the rural areas. "The rural population is not aware of the cheaper options of loans available through banks. They borrow at exorbitant rates from moneylenders," Kulkarni said.