[AI] RBI suggests free credit counselling

Pradeep banakar pradeepsocialwork at gmail.com
Sat Apr 5 03:32:54 EDT 2008

It could be made a part of the fair lending code for banks.....Khyati Dharamsi. Mumbai 

The Reserve Bank of India has suggested banks to form financial literacy and counselling centres (FLCCs) in both rural and urban India, which would provide
free counselling to people. 

The draft if implemented would take forward the current credit counselling initiatives by some banks, namely Bank of India's Abhay, ICICI Bank's Disha
Trust and Bank of Baroda's Grameen Paramarsh Kendras. 

The counselling centres should be able to take up a case on behalf of the customer, says the RBI draft. "There is a need for credit counselling centres
to be empowered for liaising and negotiating with banks on behalf of their customers," it says. 

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

The menace of recovery agent too can be delt with through the credit counselling centres, finds the central bank. "RBI may sensitise banks to give due
consideration to the debt management plan prepared by such FLCCs before resorting to recovery measures," it said. 

On single-creditor-debts the RBI said, "The FLCCs could assist the borrower in negotiating with the bank concerned. In case of multiple credits availed
of by individuals, the FLCCs may negotiate with the bank/s having the largest exposure to restructure the debt and the recoveries to be shared on a pro-rata

But their work stops there: "The FLCCs would, however, not involve themselves in recovering and distributing money. This would be left to the bank concerned,
or the bank having the largest exposure to act on behalf of all the banks." 

The step is aimed at bringing in more farmers into the organised borrowing ambit, instead of money lenders, who charge a high interest rate. 
While in the urban areas, "The aggressive marketing of personal loans and credit cards to vulnerable section of borrowers could also have consequences
of over- indebtedness and rising NPAs," RBI said. 

However, when the banks set up such credit counselling centres there should be appropriate 'firewall' between a bank and the counselling centre set up
by it. "Financial education should be clearly distinguished from commercial advice; codes of conduct for the staff of financial institutions should be
The draft is open for public comments and suggestions till April 30, 2008. 


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