Sunday 23 October 2016

Think Before Settlement with Banks

Today I was reading "Chandigarh Tribune" dated 23rd October, 2016 and found one news item on Page 3 reading as under:

"SBoP's One-Time Settlement Scheme a hit among Borrowers" 

The scheme is on from October 1 to November 30. The scheme is reportedly beneficial for small/medium-size borrowers with debt up to Rs.5 Crores as the scheme provides concessions not only in interest but even in principal amount in eligible cases.

Immediately my mind was burdened with the idea if the offerer that is State Bank Of Patiala will also offer clean CIBIL or Credit Reports to the borrowers who avail the OTS facility. Having more than 35 years experience in banking industry I am doubtful if any lending bank will offer "Clean CIBIL Report" to any of its borrowers who avail the OTS Scheme.

In my opinion, if the borrower approaches any lending banker for waiver of principal or interest in respect of defaulted loan accounts then the lending banker may be right in its decision to report the account as "Settled Account" in the CIBIL report of the borrower.  But in the above case when a general OTS scheme is announced by any bank to all its borrowers after due diligence then it implies that such offered borrowers deserve the concessions announced in the OTS scheme and such borrowers need to be treated at par with the farmers getting Loan Waiver of Debts for Farmers without impacting their Credit Score or Credit Rating.

The Government, in consultation with the lending institutions and banks need to formulate policy for the defaulter borrowers clearly differentiating the willful defaulters and the genuine defaulters. While the genuine defaulters may need concessions, under loan waiver schemes of State or Central Governments without impacting their Credit History which got damaged for reasons beyond their control, the willful defaulters do not deserve any sympathy to get general concessions announced under OTS or Loan Waiver schemes.

Are Your opting for OTS or Settlement: 

If you, as a borrower, are negotiating with your banker and financial institution for partial waiver of charges, interest and/or principal amount then you must consider the following points before entering into compromised settlements:
  • Get the clause incorporated that the account will not be reported as "Settled" or "Partially Written Off" in your credit history which may get reflected in your CIBIL, Equifax, Experian or Trans Union Credit Score.
  • Keep it in mind that no Bank or Lending institution in India or elsewhere will grant you credit facility in case your credit report includes such "Settled" or "Written off" accounts and you will have to approach the bank with whom you entered into compromised settlement. 
  • Generally Bank's do not keep the old record for more than 8 years as prescribed under the Banker's Book Evidence Act and therefore they may find it difficult to tell you about the waiver amount enjoyed by you in the past. In the absence of any data the bank will not be able to upgrade your loan account status from "Settled" to "Clear and Closed".
  • Ask for statement of account before settlement and get the unwanted charges, interest and overdue charges reversed and ascertain the correct amount of the outstanding dues. It is always better not to ask for any waiver but get the exorbitant penal interest and charges reversed so that you can come to know the real amount of loan outstanding along with interest at contracted rate.
  • Get your Credit Report analysed from Experts before taking the final decision to enter into OTS or compromised settlement lest you may find yourself trapped in poor credit score debarring you permanently from raising any loan from any bank.
In case of any doubt about your CIBIL Score or Rating you can book appointment with the leading CIBIL Consultant in Northern India.

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