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CreditCounselingforResponsibleRetailBanking
PresentedBy:AkankshaPandey
AmritanshGupta
DebashreeMohapatra
DilipMonson
IshitaSingh
PrateekBansal
NavneetKumar
SubhananSahoo
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WhatisCreditCounseling?
CreditCounselingisaprocessthatoffersguidancetoconsumersaboutcredit,budgetingandmoneymanagement.
It offers education to consumers about how to take informed
decisionsonvariousproductsavailableandavoidincurringdebtsthatcannotberepaid.
With the changing growth dynamics of the economy, certainsegments of the population becomes susceptible to excessiveborroweroptimism.
ACreditcounselor:
Provides soundadvice to arrest the deterioration of the income andrestructurestheirdebt
Offersasolutionforborrowerstograduallyovercomethedebtburden
andimprovetheirmoneymanagementskills
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History
First credit counseling agencies, National Foundation forCredit Counseling(NFCC),werecreatedin1951intheUnitedStates.
UrbanDevelopmentAct in1968allowedtheUSDepartmentofHousingand
UrbanDevelopment toauthorize publicand privateorganizations toprovidecounselingtomortgagors.
AssociationofIndependentConsumerCreditCounselingAgencies(AICCCA)founded in the US in 1993, citing a need for industry-wide standards ofexcellenceandethicalconduct.
Now many countries have undertaken significant initiatives towards credit
counselingsuchas: TheConsumerCreditCounselingService(CCCS)inUK
CreditCounselingCanada(CCC)inCanada
CreditCounselingandDebtManagement(CCDM)inMalaysia
CreditCounselingofSingapore(CCS)inSingapore
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IndianContext
InIndia,therehasbeenasharpgrowthincredittohouseholdinrecentyears.
Atend-March2004,thetotalnumberofloanaccountsunderdirectfinancetofarmers was nearly 20 million, comprising over 95% of total number of loanaccountsundertheprioritysector
Theproportionofpeopledependentonagriculturestillremainshigh.
Organized sector employment presently comprises less than 10% of theworkforce, leaving the vast majority of the working population with irregularincomestreams.
Thepenetrationofformalfinanceislessthanadequate,presumablycompellingpeople to take recourse to costly informal finance, often in conjunction withloansfrombanks.
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IndianContext(Contd.)
Intheabsenceofconsistentcredithistories,banksareoftenatalossincaseofnon-repaymentbyborrowers
There is an increasing need to develop follow-up services to enable
distressedborrowersovercomecreditdelinquencies Credit counseling thus offers a viable task-specific, advisory ad hoc
intermediarybetweentheborrowerandthebankconcerned.
Itexamineswaystosolvecurrentfinancialproblems
Bycreatingawarenessaboutthecostsofmisusingacredit, itimprovesfinancial
managementanddevelopsrealisticspendingplans. Itadvisesthedistressedpeopletogainaccesstothestructuredfinancialsystem,includingbanking
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DebtManagementPlan
OftencreditcounselingofferseducationtoconsumersabouthowtoavoidincurringdebtsthatcannotberepaidthroughestablishinganeffectiveDebtManagementPlan
WhatisaDebtManagementPlan?Thedebtmanagementplanisexclusivelydesignedtoprovideindividualswithauniquesolutionforyourfinancialsituation.
Professionallytrainedandindependentlycertifiedcounselorswill: Evaluateyourfinancialsituation
Assistyouincreatingabudgettohelpmanageyourfinancesanddebt.
Andworkwithcreditorsforapossiblereductionin:financecharges,latefeesand/orover-limitcharges,monthlypaymentsandtimetopayoffdebt.
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Advantages
Thedebtmanagementcompanyhelpsevaluateyourcurrentfinancialsituation.Ittakesintoaccounttheinterestratesonyour
bills,totalamountyouoweandtheminimumpaymentoneachaccount
Onceyouenrollwithadebtmanagementservices,thecompanyworksonyourbehalftolowertheinterestratesandmonthlypaymentstoyourcreditors.
:Thedebtmanagementcompanyworksoutarepaymentplanwithyourcreditorssothatyoucanpaybackyourbalances.
You'llmakeasinglemonthlypaymenttothecompany.Thecompanythendisbursesthepaymenttoyourcreditors.
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Example
UncleSamhas , .
Theinterestrateononecreditcard:15%
Theinterestrateontheothiscreditcard:25%Theinterestrateonthepersonalloan:20%
So,theaverageinterestrateis=(15%+25%+20%)/3=
Theoutstandingbalanceonthefirstcreditcard:$15,000
Theoutstandingbalanceonthesecondcreditcard:$12,000Theamountowedonpersonalloan:$13,000
So,thetotaldebtamountis=$15,000+$12,000+$13,000=
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UncleSamentersintothedebtmanagementplan.
UncleSamcombinesthedebtsintoasinglemonthlypaymentatinterestrateof8%.
IfUncleSam'spaymentsbeforethedebtmanagementplanwerebasedon3%ofmonthlybalanceandsheweretomakeonlyminimumpayments,shewouldbepayingthe$40,000.00balanceplusanotherroughly$49,000.00ofaddedinterest.Itcouldtake376monthsforUncleSamtopaythetotal$89,000.00
InthedebtmanagementplanUncleSamhasreducedhiscombinedinterestratesdownto8%andwillbebilledusinga2%ofbalanceformula.hispaymentwillbe$800.00eachmonth.Shewillhavepaidlessthan$10,000.00ininterestandwillcompletehisdebtrepayment
planinabout60months.
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Non-profitDMP
Nonprofitdebtmanagementcompaniesfunctionjustlikethefor-profitmanagementfirms.Akeydifferenceisthatthenonprofitcompaniesusuallydon'tpaytaxestotheIRSandtheyreceivefinancialhelpfromthecreditorswhomtheyarepayingonyourbehalf.
Herearethekeybenefitsofanonprofitdebtmanagementprogram: Providesyouwithafreecounselingsession
Helpsyoucreateabudget
Createsafinancialplanforrepayingbills
Haveexistingrelationshipswithyourcreditors
Loweryourinterestrate
Waivelatefeesandpenalties
Helpstoloweryourmonthlypayments
Re-ageyouraccounts
Reducescollectioncalls
Nonconfrontationalapproachtodebtrelief
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CurrentScenario
ReserveBankcameoutwithaconceptpaperonthesubjectandFinancialLiteracyandCreditCounseling(FLCC)centersinApril2008.
Thesecenterscouldbeagreatresourceforloanapplicantsasafinalstepin
theirresearchbeforetheyzeroinonthekindofloantheyneed.
BankofIndia-supportedAbhay(http:www.bankofindia.con/abhay.aspx)and
ICICIBank-backedDisha(http:www.dishafc.org)whohaveabunchofsuchcounselingcenterswhereyoucansetupameetingwithexpertstotakeacallonaproblemyoumayhavewithrepayingyourloanoracounselingsessiontoarriveatthebestoptiontomanageloans.
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ThankYou
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