Credit counselling norms on cards

The Reserve Bank of India (RBI) today directed banks to set up financial literacy and credit counselling centres (FLCCs). The central bank is also considering issuing guidelines to facilitate the setting up of FLCCs by banks for group and individual counselling.

These are a part of the recommendations of RBI's concept paper on FLCCs, which is open for public comments. It is also suggested that banks would have to share customer credit information with FLCCs.

"FLCCs could obtain comprehensive credit information from the concerned bank or the bank having the largest exposure to the defaulting borrower. The functioning of FLCCs in each state may be monitored by a committee headed by the regional director of the Reserve Bank of India and feedback provided to the banks on a regular basis,'' said the RBI.

The concept paper comes at a point when many banks have been seeing a rise in non-performing assets (NPAs) in their unsecured portfolio, paticularly the small-ticket, personal loan business. The trouble in this portfolio is largely on account of aggressive marketing leading to over-indebtedness. Many private and foreign banks in the recent past have faced litigation for allegedly using harsh steps to recover money from wilful defaulters.

"RBI may sensitise banks to give due consideration to the debt management plan prepared by such FLCCs before resorting to recovery measures. RBI may evolve a mechanism for dissemination of information on FLCCs set up by banks,'' said RBI in the concept note.

The paper also recommends that to help customers make informed decisions, all banks would have to display on their websites particulars of all fees, interest rates, yields and other features of standard products offered by them.

The regulator is also exploring the possibility of displaying the consolidated data on its website for one-stop information on all banks and develop in association with the Indian Institute of Banking and Finance (IIBF) a dictionary of common terms used to describe and compare products so that they are easily understood.

RBI is also planning to convene a meeting of chief executive officers of major commercial banks, Indian Banks' Association, Nabard and national-level associations of cooperative banks, apart from experts and leading NGOs working in this field to discuss the concept, scope, modus operandi of providing financial literacy and credit counselling services and thereafter issue detailed guidelines on the subject.

Offering credit counselling could be made a part of the fair lending code for banks in due course.