A code that works?H N Sinor, CEO of the Indian Banking Association, IBA, says that the IBA is working with the RBI on a comprehensive code of conduct for the proper recovery of dues by banks. "The key thing for credit card issuers is to upfront tell the customer how we will behave with the customer, so that customers are not taken by surprise later on and there are no hidden costs. The code will say that we will be following some fair practice and we will inform the customer of the positives and negatives of a product upfront. It says, that we will deal with customers with dignity and respect with respect to debt collection and follow the persuasive method, not the coercive method," he told.
Proposals to clear the mess:
1. More stringent credit risk analysis by banks.
2. Get the Code of Conduct in shape
3. Get it enforceable by the RBI and the courts
4. Draft a comprehensive law based on the US FDCPA
5. Authorise the banking ombudsman to mediate in collection disputes.
6. appoint more judges and speed up the judiciary process for speedy redressal of disputes
The recovery of credit dues is a delicate problem, because of the phenomenal growth the sector has seen since 1999, when Citibank first started issuing credit cards in India, to the present day, when there are more than 10 million cards circulating throughout the country. While the credit card market is estimated to be growing at a rate of 30%, by 2010, it is expected that there will be more than 35 million cards in the country.
Sarvesh Swarup, Country Business Manager, Global Consumer Group, Citigroup told Moneycontrol.com, "The RBI has set up a working group with the IBA on credit cards. A regulatory body did not happen much earlier, because the market was very small to begin with, there were less players (banks) and cards were still considered elitist."
New ways to make collection easier
The IBA and the RBI are now also considering getting the banking ombudsman in the act. Sinor said, "Apart from the channel within each bank to redress grievances, we are trying to work out whether the role of the banking ombudsman, who was earlier not taking up these cases, can be extended. So perhaps in a short time we will see the banking ombudsman as an agency where a customer can take their grievances to, apart from the bank itself."
However, if the state and central governments step in to speed up the civil judicial procedures, this would also prompt banks to approach the courts for claiming recoveries, rather than appoint a recovery agent, Manshinde says. "This can be done by speeding up the machinery appointing judges. There are so many state-controlled banks out there, so the government should take corrective measures to speed up legal recoveries. Then there would be a summary procedure for recoveries in place," he said.
Till such a time, it would seem that banks should carry out their risk-analyses on prospective customers more exhaustively, to reduce the occurrence of such future default-and-chase scenarios. Manshinde says, "The banks are very keen to get into the credit market, and that is why we receive so many calls from them, chosen to be lucky ones who benefit from their cards. When they get their customers, they should be more careful to verify their risks. But they are not careful then, and give \'free cards\' to everyone. We are seeing the result of that."
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