Ways to access funds in recent times has improved dramatically, which increasesthe spending needs amongst us. These factors have enabled us to borrow at will and in this process we get stuck with the process of repaying it. In the recent times, the average level of household debt has increased unmatched with the rising income levels. The recent data of RBI shows that personal loans have increased from around 20% of total credit in 2010 to 21% in 2016 to forming more than 24% of credit by January 2018. Whereas the credit cards outstanding has increased to 3.57% in January 2018 from 2.86% two years ago for the same period. This situation is becoming more crucial as the deposit growth does not match with the credit growth. In the last financial year, deposits grew at a rate of 4% and reached Rs.100.2lakh crs while the bank credit grew by 6.5% and reached at Rs. 83.5lakh crs in the same period. All this can be clearly visible on the increased rate of debt default in the recent times. The NPA rate of most of the banks are increasing especially public sector banks which cater the common public. The recent NPA rate by RBI shows that the NPA were standing at 9.4% in Dec 2017, which is expected to grow to 9.6% to 10.2% between March and Sep 2018.
Most of the double income families now a day’s earn enough to pay the EMIs on their loans, pay off their credit cards dues and support their lifestyle, but not enough to leave behind good savings for a rainy day. Whenever a sudden crises happen in their life, which will lead them to a big financial crisis and the outcome will huge debt default. Situations like these need a bit of financial planning to see you through it but often people do not want to seek help as they do not want to declare their inability to pay back. I such case debt counselling helps to reduce your stress.
What is Debt counselling?
Debt counselling is a relatively new concept in India. But looking upon the rate of increasing debt default, this service have a lot of potential in the coming days.
In foreign countries, Debt Counselling is a formal legal process that provides for a consumer to be declared over indebted and for the Debt Counsellor to negotiate a restructured payment plan and obtain a court order confirming the new repayment plan.
In India, the Debt Counselling is a counselling service that is offered to address those debts that are beyond a person’s debt paying ability. This facility could help one come out of serious debts by ensuring the right budgeting and repayment plan on right time and at the right place.
Debt counselling service providers
In India, there are two types of agencies that offer credit or debt counselling. One is non-profit organizations or NGO’s which charge no or low fees and the others are players who charges for their services. Some nationalised and private banks provide this facility to their customers. Bank of India’s Abhay credit counselling service, Grameen Paramarsh Kendras of Bank of Baroda and Disha counselling centre by the ICICI Bank are examples. RBI has instructed all banks to open debt counselling centres in all major districts. These agencies not only provide their clients with wise advice, but also negotiate with creditors on their behalf, in order to work out a reasonable payment plan and thereby help you to come out of the debt web.
Different Type of Debt counselling service
There mainly two type of debt counselling services in India.
Counselling only: The counselling service could comprise the advice only and nothing more. The service provider analyses your current financial position, debt structure, and causes for such situation. Then, they would work out the possible repayment options and determine the best one. They also work out a budget for you, setting limits for your expenses and provide knowledge to deal with your finances in better ways.
Counselling and negotiating debts for their customers: If simple counselling is not enough, you can get them to help you directly to negotiate and deal with creditors on your behalf. The negotiations could include lowering the interest rates, waiving the late payment penalties, options like step-up repayment, loan restructuring, etc. This option is not free and include fees depending upon organization, debt amount, and other factors.
Methods such as debt consolidation, debt relief, debt reduction approach, debt settlement, etc. are used by the Debt counsellors to overcome debts of their customers.
Documents required for debt counselling
The following are the documents that the debt counselor will required to bring your debt in to control.
A filled Application form
This the first step of the debt counselling procedure. The customer have to fill an application form which comprises of his personal details, his income profile and current income, the list of debts and its current monthly repayments , the list of assets which he holds and some legal declarations which he need to signed by the customer. Some organisation also give the details of their fee and the plans they provide in the application form.
Copy of ID Proof
The debt counselor requires the ID proof of the clients to comply with the KYC norms. This also help the debt counselor about the genuinity of the customer. The debt counselor also required this to generate the current credit rating report of the customer.
Income proof of the customer
The debt counselor will require the income proof of the customer to check his financial position as well as the source of income. The income proofs can be his last six months salary slip or last three year tax statement. This will help the counselor to have a idea of the cash inflow of the customer.
Last three months bank statement
The debt counselor will require the last three months bank statements to understand the cash out flow as well as the genuinity of his income. If the customer is multiple bank accounts then the statement of all this accounts will be needed.
Recent statements received from the credit providers
The debt counselor will require the most recent three months statements of account received by the consumer from his credit providers in which the monthly installments and outstanding balances due to his creditors are reflected. If the customer is holding multiple credit then the statement of all those credit should be submitted.
The list of Assets that can be used for the debt counselling
The costumer should submit the list of all the assets which can be used by the debt counsellor to reduce the debt. The list should contain the details of the asset, type of the asset, the current value of the asset etc.
If available, letters of demand and summonses received from the creditor.
The customer should disclose the recent letter of demand and any legal summonses which he received from the creditor. The customer should hand over a copy of such documents to the debt counsellor so that he can have a clear understanding about the current position of the credit.
The objective of debt counselling
The objectives of the debt counselor is
- To assess the full extent of your debt situation
- To assess your assets that may be taken into account
- To provide a debt remedy
- To provide you with an acceptable standard of living while repaying your debts according to your affordability – this includes retaining the home and a vehicle where possible.
- To provide you with an agreed, affordable and realistic monthly budget in order to resolve the situation in the shortest possible time
- To provide a repayment scheme acceptable to your creditors and confirmed by the Court
- To prevent repossession of assets where possible
- To Rehabilitate you without detriment for the future
- And to allow you to get on with your life.
“Prevention is better than cure”. Therefore, before getting into any debts, it is advisable to check your financial position and affordability of the loan. If your EMIs are above 40-50% of your monthly income, you need to be extra cautious. Also, avoid taking new loans to settle the existing ones.
Dilzer Consultants Pvt Ltd