The art of debt management

The art of debt management

As India learns to consume,it is also learning how to climb into debt,finds Kartikay Mehrotra.

Last week,51-year-old Saminder Singh Arora and his 47-year-old wife Mini of Delhi,added financial turmoil to their list of life’s struggles before allegedly killing their son and throwing their own bodies in front of an on-coming train. Police pointed to Arora’s floundering business and mounting debt as the impetus for the unfortunate decision which left Saminder Singh’s 80-year-old father to mourn his family’s death.

And at last,Indian consumers have proof that the modern business of credit and debt has literally become a matter of life and death. With banks willing and able to issue their consumers credit limits beyond their financial means,coupled with debt collectors turning a healthy profit through repeated phone calls,which can lead to verbal threats and physical assault,card holders must become savvy spenders who know their own expenses and debt inside and out.

In fiscal 2008-2009,Banks issuing credit cards to Indian consumers lost 5 to 20 per cent of their outstanding balance thanks to credit card holders who failed to make payments,according to credit experts. Although the Credit Information Bureau of India Ltd. (CIBIL) has been on its feet for nearly a decade now,banks getting burned by overzealous spenders and unscrupulous debtors are just now getting their wits about them to recover the lost debt.

Facilitating that process are collection agencies who tie-up with banks in search of their dues. Each month,these agencies will receive dozens,if not hundreds,of names of delinquent credit card holders from those banks – who will write off the losses after accounts reach past due dates of 120 days. Those creditors will attempt to contact the cardholder under the guise of a ‘debt manager’ or ‘debt consultant’ calling on behalf of said bank.


Depending on when the holder made their last payment,the amount of the outstanding debt and the respective bank,the debt-collecting agency will be cordial in its attempt to recover the cash,that is if the debtor agrees to entertain the call. However,those agencies receive accounts sorted by outstanding balance and duration of delinquency. A debt collector hired by the bank to collect from a bucket of persons 90 days overdue will use different techniques to recover cash than a collector seeking recovery from a 30-day bucket because the commission between the two varies.

If the delinquent person seems willing to resolve their debt,the collection agency will likely negotiate a one-time payment,which will clear the account and close the card or loan. Or the agency will set-up an equated monthly installment (EMI) coupled with an abbreviated interest rate which will allow the debtor to pay off the balance,or a negotiated balance,over a series of payments. Once the account has been paid off – typically in the neighborhood of 30 to 40 per cent of the original balance – the agency will give back a percentage of the recovered balance before reporting closure of the account to CIBL. Note,if you are negotiating with a bank-affiliated agency and its legal team,it is in the interest of that agency to recover as much cash as possible from a debtor toward their balance. The company cannot ask you for money to directly put in their pocket,instead they’ll make money off of their collection from you.

Delinquent cardholders will likely find the process of debt recovery far more endurable and affordable if they initiate the process by hiring their own debt collecting agency and their legal team. Across India,the business of debt collection is becoming so profitable that organisations will register with the government just to make cold-calls and send mass SMS messages to contact potentially delinquent consumers.

In these cases,organisations like Alleviate Debt Management in Delhi will charge customers a registration fee based on their debt before their legal team takes the matter up with the bank. For instance,if the indebted has a 1 lakh balance past-due by 90 days,the agency will collect Rs 1,650 to take the case. Then,depending on the final negotiated payment,the delinquent person will pay 10 per cent of the different saved,i.e. if Sandeep Sharma at ADM is able to cut a 1 lakh balance down by Rs 60,000,the cardholder will be asked to pay the final balance along with 10 per cent of Rs 60,000.

“If the bank’s company calls you and you say you need an extra four months to pay off the balance,what do you think they will say? No,they will say no and they will harass you until you pay the balance,” said Sharma,ADM’s senior-most debt collector and a future MBA student in sales and marketing. Although Sharma would not elaborate on the company’s success rate,he said ADM – now about 18 months old – has a staff of over 50 employees and is making good money using the cold-calling revenue model.

However every bank will not be entirely flexible in their negotiations. In fact most government banks will take no part in the process out of fear of reports of inconsistencies to the Central Vigilance Commission (CVC). “It is a public school mentality. Banks like Punjab National Bank (PNB) will have the CVC coming to them saying ‘why did you give a 20 per cent to one side and 70 to another?’” remarked one credit expert under a condition of anonymity. “They generally don’t want to get into that gray area at all.”

All banks contacted for this story,including HDFC Bank,Axis Bank,Deutsche Bank,PNB and CitiBank declined to comment or did not return written requests for an interview. Another expert speaking under a condition of anonymity stated that banks fear repercussions from the RBI if their reports to the government and their own books are not consistent because after an account is delinquent for more than 120 days,a bank will call it a loss on their books. Therefore,any cash their debt collecting agency recovers is considered pure profit.

Why does this all matter? Aside from a consumer’s social obligation to pay for what he/she is purchasing on credit,CIBIL is getting stronger at monitoring everyone’s credit and serving as a resource for lenders. While loopholes certainly still remain,allowing credit seekers to use various alias’ addresses and identification numbers to take out different loans,CIBIL is growing as the backbone of India’s credit and loan sector.

Today,anyone considering taking out a loan or any lender can review a person’s credit history. Although the process of ascertaining one’s credit report can be convoluted. To get your CIBIL credit report,you will require a formal request form,identity proof (a PAN card,passport or voter ID),address proof (bank statement or a utility bill) and a Rs 142 payment through demand draft or online transaction. Hard copies of all documents are to be submitted before you receive written confirmation of the request which is then followed by the actual report.

The report itself will be broken down into six sections: Report header information,borrower information,address(es),summary,accounts and enquiries. The first section is rather basic,including details on when the report was created and a serial number for the report. Borrower information will include ones name date of birth and some basic identification details. Address will be similarly self-explanatory.

The summary will include the following sections: total (total number of accounts displayed),overdue (number of accounts with overdue balances),zero-balance (number of paid off accounts),advances (highest amount of credit used in the history of the given account) and balances (principle amount and past-due amount).

‘Enquiries’ will include the number of requests for the details of this report. This is useful for the borrower to know how active credit grantors have been in checking their payment history over the last month,year and two years.


For more information or to access your credit report,visit