Erring Borrowers
When man bites dog, it makes news. Similarly, when a big and powerful bank goes after a seemingly helpless borrower, it makes great media copy. Personally, I believe that stories about individuals who pull a fast one over big banks and finance companies is also newsworthy but banks rarely want to admit in public that they were cheated by crookedly clever borrowers.
The Reserve Bank of India (RBI), however, is fully conversant with both sides of the story. And, under governor Dr YV Reddy, it has in place an excellent consumer services division that has worked steadily to understand issues and level the playing field to protect consumers without hurting the commercial interest of banks. It is true that direct selling agents of banks indulge in mis-selling in order to close a deal, but far too many consumers are equally guilty of opting for products and services without paying attention to the fine print and other conditions. Those who borrow recklessly, without waiting to check which financial product meets their requirement at the lowest interest rate, are the worst-affected.
A key take-away of the MoneyLIFE-Citibank workshop on the consequences of negative credit histories was that consumers of financial products would have far fewer problems if they have access to some expert advice or counselling. For instance, a person who ought to take a loan repayable over a 12 to 24-month period (carrying an interest of 18%) may foolishly load the expense on a credit card where the interest is a high 36% and quickly fall into a debt trap. This is not uncommon. A credit card is best used as an alternative to cash or for expenses that can be paid back within a couple of billing cycles.
Similarly, some borrowers try to be clever and juggle credit over multiple credit cards, confident that they can use one credit card to repay the outstanding on another to take full advantage of the 21-day free credit that is available on the card. This requires very careful management of billing cycles and any delay in repayment lands the borrower with a high interest charge. Then there are borrowers who take advantage of the availability of easy personal loans to borrow small sums in quick succession from multiple lenders. Since subprime loans carry a high interest tag, the EMIs (equated monthly instalments) total up to a sure recipe for default. At least one person was driven to suicide after failing to repay such loans.
The good news is that banks are willing to help people who commit such mistakes. PS Jayakumar, Citibank’s country head, consumer banking, says that Citibank is always willing to help the borrower to restructure the borrowing. Often, the Bank will also consolidate the outstanding on different credit cards into one personal loan, carrying a lower interest rate, so long as the other cards are cancelled. Kaza Sudhakar, RBI’s chief general manager, consumer services, says that borrowers must have the intention to repay and demonstrate it. For instance, if a borrower has a problem with one item in his monthly statement, then it is only fair that he holds back only that payment and settles the rest of the bill.
However, in his experience, it is a rare customer who will pay the undisputed amount; yet they are furious when interest on genuinely outstanding payments begins to mount. He advises borrowers to establish their willingness to pay legitimate dues, since it enhances the credibility of their complaint. An interesting finding of lending agencies is that younger borrowers are more likely to default than older ones. Worse, neither high educational qualifications nor a fancy, high-paying job, guarantees ethical behaviour. That is why defaults on education loans tend to be high and it is not uncommon for youngsters to buy flight tickets as their last credit card transaction before leaving the country for higher education. Clearly, there are no saints on either side.

Ms Dalal is the Consulting Editor of MoneyLIFE. Subscribers get free help in resolving their problems with select providers of financial services. She can be reached at suchetadalal @yahoo.com

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