another example of the Credit Card industry's deceptive advertising targeting children
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Wednesday, July 27, 2005

Banks need to Educate Card Users.

In search of friendly recovery measures
PREETI R IYER
Friday, July 15, 2005 at 0000 hours IST

As American business tycoon John Paul Getty rightly pointed out, “If a customer borrows $100 from a bank, it’s the customer’s problem. But if he borrows $100 million from a bank, then it is the banker’s problem!”

Increasingly, the rate at which credit card dues are piling up, it now seems more like a bankers’ problem than the borrower’s. Competition within the industry has forced card issuers to go for massive countrywide expansion, compromising on the due diligence of issuees.

Lack of awareness about various conditions, including charge of high interest rates (between 20 and 40% per annum) and roll-over of outstandings lead the cardholder to commit frequent defaults and fall into the debt trap. Since credit card exposure is an unsecured lending, recovery remains a challenge for the credit card issuer.

Several measures could help salvage the situation. The establishment of the credit bureau (CIBIL) provides a unique opportunity to improve the screening of new applications and banks plan to fully avail of this service to spot the defaulters. Banks are sprucing up various methods to try and identify the potential risks a customer carries and accordingly, issue cards to applicants.

Says HSBC’s head-personal financial services India, Nicholas Winsor, “This helps safeguard the quality of the bank’s portfolio. We also refer to various sources that might indicate a history of delinquency, an attempt aided by the credit bureau. Based on portfolio data, we do identify segments which are not performing well and restrict these cases.” Another route banks adopt is to provide credit card users the facility of converting outstandings into a personal loan, payable via EMIs at lower interest rates.

Standard Chartered Bank attempts to ensure high portfolio quality by deploying scoring models and advanced portfolio management techniques. Explains the bank’s head-consumer banking-India and Nepal, Murali M Natrajan, “We process new applications through scoring, verification, negative database, telephone and residence verification. We also have experienced underwriters who are able to spot fraud attempts.”

Of late, the methods of recovery of credit card dues from defaulting customers deployed by banks have become a matter of immense concern for the banking regulator, Reserve Bank of India and various consumer forums. In this regard, banks typically follow a recovery procedure beginning with written communication, reminding a customer about outstandings, along with a phone call. Banks also claim that after an adequate period of time along with series of reminders, bank representatives help the customer plan his repayment schedule, including financial counselling to ensure that the customer avoids the debt trap.

However, HDFC Bank’s vice-president and head-product and portfolio, credit cards, Parag Rao opines, “The number of customers in India maintaining outstandings against credit cards is still well below international levels, and most of them pay their dues within the stipulated time.”

However, there is more to it than meets the eye. Banks also need to acknowledge the fact that they do need to play an educative role by helping customers manage credit in a wiser manner. In this pursuit, banks have started using various methods to reach out to the masses, be it via booklets, manuals, internet or on-ground initiatives. These convey to the customer how he can avoid falling into the debt trap by managing his credit prudently. In a bid to reward customers with prompt payment track records, banks try and give these customers added benefits and a favourable interest rate structure. At times it becomes imperative that punitive measures and corrective steps be taken, well ahead of time before it becomes too late.

Credit card issuers also need to adopt measures which will help them reach out to the customer in a better manner. The aim should be to lend a personal touch to the banker-customer relationship, wherein the customer is made aware of his needs, responsibilities and privileges.

1 Comments:

Blogger samuel onongha said...

please i want to contact India's leading crime-fighting agency, the Central Bureau of Investigation (CBI), which is assisting regional states to fight cyber crime.please i do belive that you may have their email address or phoe or something.
thanks a million.
Emmanuel

6:34 PM  

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