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					                          EXECUTIVE SUMMARY

        COLLECTION in this project means a service that is provided to reduce the number of
Bad Debt and convert it to Good Debt. In other words it is termed as ―DEBT COLLECTION‖.


        Here in this project we understand the importance of ―Collection‖, various terms and
concepts that are related to ―Collection‖, like the Debt, Debtor, Bad Debt, Insolvency, Recovery,
etc.
        We understand various factors that influences towards inability to pay and various
solutions that can help the debtor to come out of the problems and clear the debts. Also we
understand how the government can help the debtors to reduce the debts, by introducing various
institutions and Acts.
        Bad debt is a serious matter for any company. It has been known to ruin otherwise
successful concerns. However, it is essential to ensure that your debt collection activities result in
payment of the outstanding amounts, without damaging your customer relations.

         The Debt recovery services     must take into consideration various aspects like: pay
special attention to case assessment, pre-litigation advice, friendly negotiations and candid
analysis of the relative risks and rewards of the litigation. The approach towards debtors must be
firm but also friendly.


        The companies have to understand that the debtors are your clients and therefore,
believe in resolving the bad debts collection matters through friendly negotiations by using
proven negotiation techniques.


        The companies or the collection agencies must appoint dedicated team who will be
responsible to monitor bad debt collections and measure the efficiency and effectiveness of
strategies and liaise with the clients on ongoing basis thereby ensuring that client expectations
with regards to their bad debts recovery are met.




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                              OBJECTIVE

   To Understand the strategic importance of debt management
   Understanding the elements of an effective debt management
   Effective debt collection techniques
   Alternative means for debt recovery
   Appreciate customer psychology and interest-based negotiation strategies in handling
    difficult debt collection cases
   Understanding the essential elements of debt collection correspondence ... Overcoming
    personal and company objectives; Turning promises into commitments to payments.




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                          CONTENT LIST

Sr.No                         Topic                     Page No
 1.     Meaning of Debt                                    7

 2.     Meaning of Collection                              9

 3.     Collection Agencies                                9

 4.     Role of Debt Collection Agencies                  11

 5.     Fair Debt Collection Practices Act (overview)     13

 6.     Outsourcing of Debt Recovery Services             14

 7.     CIBIL - Central Information Bureau (India)        20

        Limited

 8.     Types of Loans Available                          25

 9.     Fair Practices in Debt Collection in India        27

 10.    Role Of BPOS In India As An International         28

        Collection Agencies
 11.    A Case Study On: ―Citibank Collection             31

        Practice‖
 12.    Debt Collection In India                          43

 13.    Conclusion & Summary                              45

 14.    Bibliography                                      48




                                        3
MEANING OF DEBT :-
        Debt is what one owes. Usually it refers to assets owed, but the term can cover other
obligations. In the case of assets, debt is a means of using future purchasing power in the present
before a summation has been earned. Some companies and corporations use debt as a part of
their overall corporate finance strategy.
        A debt is created when a creditor agrees to lend a sum of assets to a debtor. In modern
society, debt is usually granted with expected repayment; in many cases, plus interest.
Historically, debt was responsible for the creation of indentured servants.
        Before a debt can be made, both the debtor and the creditor must agree on the manner in
which the debt will be repaid, known as the standard of deferred payment. This payment is
usually denominated as a sum of money in units of currency, but can sometimes be denominated
in terms of goods. Payment can be made in increments over a period of time, or all at once at the
end of the loan agreement.
        Debt is normally denominated in a particular monetary currency, and so changes in the
valuation of that currency can change the effective size of the debt. This can happen due to
inflation or deflation, so it can happen even though the borrower and the lender are using the
same currency. Thus it is important to agree on standards of deferred payment in advance, so
that a degree of fluctuation will also be agreed as acceptable. Therefore there is a relationship
between inflation, deflation, the money supply, and debt.


USE & EFFECT OF DEBT :-
        Debt allows people and organizations to do things that they would otherwise not be able,
or allowed, to do. Commonly, people in industrialised nations use it to purchase houses, cars and
many other things too expensive to buy with cash on hand. Companies also use debt in many
ways to leverage the investment made in their assets, "leveraging" the return on their equity. This
leverage, the proportion of debt to equity, is considered important in determining the riskiness of
an investment; the more debt per equity, the riskier. For both companies and individuals, this
increased risk can lead to poor results, as the cost of servicing the debt can grow beyond the
ability to pay due to either external events (income loss) or internal difficulties (poor
management of resources).

Sale of debts
        Another option for creditors is to sell their debts to the fast growing debt buying
industry. This allows the creditor to generate immediate revenue from their accounts receivables,
save infrastructure costs associated with managing collection agencies, and avoid the possible


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legal liability and public relations risks associated with debt collection. This practice has
developed principally in the USA but now the debt purchase market is burgeoning in the UK,
Europe and Asia.


CONSUMER DEBT :-
        Consumer debt is consumer credit which is outstanding. In macroeconomic terms, it is
debt which is used to fund consumption rather than investment.
        The most common form of consumer debt is credit card debt and other consumer
finance, which are often at higher interest rates than long term secured loans, such as mortgages,
housing loan. The interest rate charged depends on a range of factors, including the economic
policy, perceived ability of the customer to repay, competitive pressures from other lenders, and
the inherent structure, political factors and security of the credit product.
        Long-term consumer debt is often considered fiscally suboptimal. While some consumer
items may be useful investments that justify debt (such as automobiles, which are usually but not
always exempted in discussions of consumer debt, and business suits).


DEBTOR
        The person who owes the bill or debt is called the debtor. People may become debtors
because of a lack of financial planning or over-commitment on their part, or due to an unforeseen
and uncontrollable event that disrupted their life. Examples include the loss of a well paying job,
an accident that leaves them unable to work, or a sudden and serious illness.
        In commercial collection cases, the debtor is a business. This includes sole proprietors,
corporations, partnerships or individuals that incurred the debt for business purposes.


Types of Debtors:
       One who is in naive financial condition.
       One who wanted to overcome from debt but due to ignorance they can't succeed.
       One who wants to overcome but no one assists him or her.
       One who wants but the situation has been changed.
       One who wants but the debt procedure is unknown to him as financial conditions
        changed from past to present?
       Last, one is who does not want to pay?




                                                   5
MEANING OF COLLECTION :-
        Collection in relation to BANKING INDUSTRY is also known as DEBT COLLECTIONS.
Collection is an act of collecting revenues that are due.


Who is a Debt Collector?
        A person who works in the in-house collections department of an original creditor or a
collection agency to track down debtors and get them to pay what they owe. Debt collectors can
be relentless, often using scare tactics, humiliation and repeated phone calls to extract payments
or promises to pay.


COLLECTION AGENCIES :-
        A collection agency is a business that pursues payments on debts owed by individuals or
businesses. Most collection agencies operate as agents of creditors and collect debts for a fee or
percentage of the total amount owed. Some agencies sometimes referred to as "debt buyers",
purchase debts from creditors for a fraction of the value of the debt and pursue the debtor for the
full balance. Creditors typically send debts to a collection agency in order to remove them from
their accounts receivable records; the difference between the amount collected and the full value
of the debt is then written off as a loss.
        In many countries, collection agencies are governed by laws that prohibit certain abusive
practices. Failure to adhere to such laws may result in lawsuits or government regulatory actions.


First party agencies :
        Some agencies are departments or subsidiaries of the company that owns the original
debt. First party agencies typically get involved earlier in the debt collection process and have a
greater incentive to try to maintain a constructive customer relationship. Because they are a part
of the original creditor, first party agencies are not subject to some of the laws which govern
collection agencies.
        These agencies are called "first party" because they are part of the first party to the
contract (i.e. the creditor). The second party is the consumer (or debtor).
        Typically, most creditors will retain accounts with first party agencies for a period of
around 6 months before the debt is written off and passed to a Third Party Agency.




                                                  6
Third party agencies :
        The term collection agency is usually applied to third-party agencies. Because they are
not a party to the original contract. The creditor assigns accounts directly to such an agency on a
contingency-fee basis, which usually initially costs nothing to the creditor or merchant, except for
the cost of communications. This however is dependent on the individual Service Level
Agreement (SLA) that exists between the creditor and the collection agency. The agency will then
take a percentage of the debt that is successfully collected; sometimes known in the industry as
the "Pot Fee" or potential fee upon successful collection. This does not necessarily have to be
upon collection of the full balance and very often this fee is paid by the creditor if they cancel
collection efforts before the debt is collected. The collection agency makes money only if money is
collected from the debtor (often known as a "No Collection - No Fee" basis). Depending on the
type of debt the fee ranges from 10% to 50% (though more typically the fee is 15% to 35%).


        Some agencies offer a flat fee, typically called as "pre-collection" or "soft collection"
service. The service sends a series of increasingly urgent letters, usually ten days apart;
instructing debtors to pay the amount owed directly to the creditor or risk a collection action and
negative credit report. Depending on the terms of the SLA, these accounts may revert to "hard
collection" status at the agency's regular rates if the debtor does not respond.


        In the United States, consumer third-party agencies are subject to the Fair Debt Collection
Practices Act of 1977 (FDCPA). This federal law is administered by the Federal Trade
Commission or FTC. This act limits the hours during which the agency may call the debtor. It
also prohibits false, deceptive or misleading representations, and prohibits the agency from
making threats of actions the agency cannot lawfully or does not intend to take.


        In the United Kingdom, although no similar law exists, all third party collection agencies
must hold a consumer credit license under the Consumer Credit Act 1974 in order to carry out
their business. Licenses are issued and regulated by the Office of Fair Trading a government
body which protects consumers from unscrupulous traders. In order to retain their license third
party agencies must work within the framework outlined within the 2003 fair debt collection
guidance.




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ROLE OF DEBT COLLECTION AGENCIES :-
        Debt Recovery process has become nightmare for many small businesses and large
corporate. Various debt recovery agency helps in quick recovery of your money owed and makes
sure it is not resting in some one else's pocket. Even though your bad debts are insured or not, the
debt recovery agency has network of debt collectors who can take care of your debt collection.
        There are various ranges of debt collection services and debt recovery services available
that can solve the bad debt problems which will help you increase your profits. The Debt
Recovery Agencies uses their expertise and state-of-the-art debt collection methodologies and
experienced debt collectors to maximize the collections.
        The most important thing is that most of these Agencies regulate the collection business
by certain recovery laws, which are according to rules, and regulations of that particular country.


COLLECTION PRACTICES :-
        The modern business model is the primary reason for the many complaints brought
against collection agencies. Debt collectors who work on commission may be highly motivated to
convince debtors to pay the debt, often to the point that they sound threatening to the debtors.
Most people are accustomed to being treated with a certain amount of customer service and often
complain that they do not receive that treatment from debt collectors.


COLLECTION CALLS :-
        Collection calls inform a debtor of his obligation and motivate repayment. In the US, the
FDCPA prohibits calls to the debtor if the call will cost the debtor toll charges or air time charges.
If a person answers, the call center may track statistics (e.g., the times and days when someone
answers) in order to place calls at times when the debtor is more likely to be home.
        Successful collection calls also rely on the skill and understanding of the collector making
the call. Quite often a collector only has the first initial phone call to establish a rapport with the
debtor and to help work out a solution to the debt owed. This may take the form of a payment
plan or a discount on the principal amount that is owed.
        In international debt collection cases the collection calls are often made in a foreign
language. This is useful if the debtor's knowledge of English is limited and it is quite often this
lack of English that is used as a debtor excuse for non-payment.




                                                  8
SKIP TRACING :-
        Skip Tracing process involves tracking someone who owns your money. Successfully
collecting on a delinquent account requires locating the debtor. A debtor may relocate and/or
have his telephone disconnected, believing they are leaving creditors with no immediate means
of contact. Skip tracing allows creditors to locate debtors through various outlets available to
them.

Objective:
         Control    the    bad    debt    risk    and    improve       your   cash    flow      position
Whatever your business is, there will be always a portion of your customers that will be delaying
payments. Tracing delayed payments could be time consuming and expensive. To control the
risk of delayed payments you need to differentiate between ―normal‖ delays and such that will
become very soon difficult to collect. For the first type of delays there is need for soft collection,
for the second type of delays there might be a need for hard collection, tracing, legal actions
and/or professional collection services. The objective there should be to reduce the risk of non-
payment and delayed payments are to analyze from which type are the delayed payments and to
put in place an appropriate action. One should see their role in improving your collection
indicators for delays up to 90 days.
        Some companies consider delays higher than 90 days should be subject to professional
legal services or actions. Often delays up to 90 days are due to lack of communication and
relation with the customers, or are due to miscommunications, wrong data (address for example),
billing problems etc. Companies and financial institutions can improve the collection indicators
up to 75%-80% for delays up to 90 days. Hence one should design a collection process in such a
way, which aims to improve your cash flow position, by respecting the long-term client
relationship. The result of collection actions will reflect directly in a positive way to the cash flow
position of your business, can reveal gaps in your business process, but will also contribute to
improved                      customer                      relation                    management.
Delays in payments for up to 90 days require a tailored approach. In some cases a reminder will
be enough, for other cases the collector-operator will have to reach a verbal agreement with the
consumer to pay the outstanding debt over a defined period of time.
        Our service-minded team of collections, specially trained in collection negotiation and
soft skills will identify the cause of the non-payment in first place and than will apply the
required approach. Some of the reasons for non-payment may be due to: the invoice was not
received, due to wrong data the invoice was forgotten or lost; the customer is trying to take
advantage and delay payment the customer is not satisfied with the company or the product; the


                                                  9
customer disputes the amount of the invoice and may have notified another department; the
customer has difficulties in meeting deadlines for payment; the invoice has been paid, but the
company is unable to trace the payment; the customer has paid with a wrong customer client
reference



FAIR DEBT COLLECTION PRACTICES ACT (FDCPA- AN OVERVIEW) :-
        It generally applies to personal dept, family dept, and household debts. This might
include medical, goods purchase, and financial settlements. Therefore, most of the Debt
Collection Agencies does not deal in unfair, abuse practices and deceptive ways while collection
of debts.
            Major debt collection laws are to be followed now-a-days to make the debt collectors
proficient in their job profile. The circumstance leads the debtors in debt. As soon as the
conditions favors the debtors overcome from that part and even want to settle down the debt in
installments, full and on part basis. In these cases, full assistance is needed to finalize the
accounts receivables.
        Collection agencies may contact individuals other than the debtor, with important
limitations. Under the FDCPA, a collector is permitted to call a neighbors or relatives for help in
locating the person who owes a debt, as long as there is no communication about the debt.
Collectors must state their name and must give the name of their employer if the person
specifically asks. A collector may contact each person once, unless it is believed that the person
gave the collector incorrect or incomplete information at the time, but now has complete or
updated information.
        Collectors may contact a debtor at the workplace unless the collector has been informed
the employer prohibits such calls.
        At times a collector in error may contact a person with no connection to the debt or the
debtor. Examples include victims of identity theft, people erroneously targeted due to a similar
name, or people who otherwise dispute the validity of the debt. In the United States under the
FDCPA, anyone has the right for any reason to request, in writing, validation of the debt or to
demand the collector cease communication.




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OUTSOURCING OF DEBT RECOVERY SERVICES :-


Why is Debt Recovery Services Outsourced ?
Recovery calls rely on repletion to motivate the debtor to pay.
For successful collection, necessary skills are very important like communication and
understanding of position of debtors.
Most recovery agencies make sure of collecting the pending accounts of receivables and that's
what matters.
How to collect the debt is the matter of law and rules as per countries and states.
To establish a rapport with debtor and work solutions to understand the situation.


Required Conducts For The Debt Collectors :
         Identification and notification to the consumer is very important for debt recovery
process. The calls are made only by the personal debt collectors and for the debt collection only.
                Name and address of the original creditors are written request within 30 days of
receipt. Notification of consumer's of their right to dispute the debt in a part or in illogical. Debt
collectors send validation notice when the first call is made to customer regarding debts.
         If consumer sends, a written dispute or request for verification handling approach then
within 30 days of receiving the validation notice from debt collection agency is ready to provide
the details.
         Lawsuit is the last option left for the debt collector when debt consumer signed the
contract and present him self in front of law tribunal.
         These are the various laws that followed under any circumstances while collecting debt
for your good financial organization.


JUDGEMENTS IN COLLECTION              :-
         Judgments in Bad Debt Recovery are followed in the same manner that is mentioned in
the ―Judgment passed‖ judgments. The attorney must follow a very systematic and full-proof
approach in collecting judgments from investigations to execution and in case need arises to,
injunctions.
         Post-judgments remedies include attachment of bank accounts, properties and re-
possession. The ―Creditor (Company of the Collection Agency) must follow fair Debt Collection
Practices with the help of Expert Attorneys & Professionals and various Proprietary Tools.

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Database and immense Network companies must immediately activate the Judgment collection
process and begin gathering the information relating to assets, source of income, hidden assets
etc of the Judgment Debtors.


COLLECTION ACCOUNT :-
           Collection account is the term used to describe a person's loan or debt which has been
submitted to a collection agency through a creditor. The term is not used on debts with only
original creditors.
           The collection account normally appears on the credit report of a person (debtor) who
has had one or more accounts referred to collection agencies, within the last seven years. The
name of the collection agency, and the amount of money a person owes, will be listed in the
report. Also, in some cases, the agency's contact information is listed. If a debtor pays off a
collection account, the item will not be removed from the credit reports - it will simply be marked
"Paid."


CREDIT REPORT :-
           Credit history or Credit Report is, in many countries, a record of an individual's or
company's past borrowing and repaying, including information about late payments and
bankruptcy. The term "Credit Reputation" can either be used synonymous to credit history or to
credit score.
           In the U.S., when a customer fills out an application for credit from a bank, store or credit
card Company, their information is forwarded to a credit bureau. The credit bureau matches the
name, address and other identifying information on the credit applicant with information
retained by the bureau in its files.
           This information is used by lenders such as credit card companies to determine an
individual's credit worthiness; that is, determining an individual's willingness to repay a debt.
The willingness to repay a debt is indicated by how timely past payments have been made to
other lenders. Lenders like to see consumer debt obligations paid on a monthly basis.
           The other factor in determining whether a lender will provide a consumer credit or a
loan is dependent on income. The higher the income, all other things being equal, the more credit
the consumer can access. However, lenders make credit granting decisions based on both ability
to repay a debt (income) and willingness (the credit report) as indicated in the past payment
history.
           These factors help lenders determine whether to extend credit, and on what terms. With
the adoption of risk-based pricing on almost all lending in the financial services industry, this

                                                    12
report has become even more important since it is usually the sole element used to choose the
annual percentage rate (APR), grace period and other contractual obligations of the credit card or
loan.


DETERMINING CREDIT RATING :-
        Credit ratings are determined differently in each country, but the factors are similar, and
may include:

       Payment record - a record of bills being overdue, generally being more than 30 days, will
        lower the credit rating.

       Control of debt - Lenders wants to see that borrowers are not living beyond their means.
        Experts estimate that non-mortgage credit payments each month should not exceed more
        than 15 percent of the borrower's after tax income.

       Signs of responsibility and stability - Lenders perceive things such as longevity in the
        borrower's home and job (at least two years) as signs of stability.

       Re-Aging - Through re-aging, a credit history is re-written and you are given a fresh start
        on that particular account. This can dramatically improve the credit score. In 2000 the
        Federal Financial Institutions Examination Council (FFEIC) clarified guidelines on re-
        aging accounts for delinquent borrowers.

       Credit outstanding--Lenders don't like to see the amount of credit owed bumping up
        against the credit limit of a card. Generally, a good idea is to owe no more than one-third
        of your total credit limit on a credit card.

       Credit inquiries – An inquiry is a notation on a credit history file. There are several kinds
        of notations that may or may not have an adverse effect on the credit score. Soft pulls
        don't affect the credit score and are characteristic of the following examples:

        A credit bureau may sell a person's contact information to an advertiser wanting to offer
credit cards, loans and insurance based on certain criteria that the lender has established. A
creditor also checks a person's credit periodically. Or, a credit counseling agency, with the client's
permission, can obtain a client's credit report with no adverse action. Each of the preceding
examples are commonly referred to as a "soft" credit pull.
        However "hard" credit inquiries are made by lenders when consumers are seeking credit
or a loan. Lenders, when granted a permissible purpose, as defined by the Fair Credit Reporting


                                                  13
Act, can check a credit history for the purposes of extending credit to a consumer. Hard inquiries
from lenders directly affect the borrower's credit score. Keeping credit inquiries to a minimum
can help a person's credit rating. A lender may perceive many inquiries over a short period of
time on a person's report as a signal that the person is in financial difficulty and is looking for
loans and will possibly consider that person a poor credit risk.

       Credit cards that are not used - Although it is believed that having too many credit cards
        can have an adverse effect on a credit score, closing these lines of credit will not improve
        your score. The credit rating formula looks at the difference between the amount of credit
        a person has and the amount being used, so closing one or more accounts will reduce
        your total available credit. And the lower the percentage of available credit, the more the
        credit score will drop. The credit formula also factors in the length of time credit accounts
        have been open, so closing an account with several years of history is another avoidable
        credit mistake.

        Many developed countries publish CREDIT REPORTS that includes sample credit report
and credit score documents with explanation of notations and codes that are used. Those books
also contain general information on; how to build or improve credit history and how to check for
signs that identifies if any theft has occurred.

        CIBIL-Central Information Bureau (India) Limited is one of the credit
rating agency that keeps tab on the “credit worthiness” and minimizes defaults
and maximizes credit penetration and portfolio quality, by providing
comprehensive credit information pertaining to individual borrowers.


CREDIT HISTORY OF IMMIGRANTS :-
        Credit history usually applies to only one country. Even within the same credit card
network, information is not shared between different countries. For example, if a person has been
living in Canada for many years and then moves to the United States, when they apply for credit
cards or a mortgage in the U.S., they would usually not be approved because of a lack of credit
history, even if they had an excellent credit rating in their home country and even if they had a
very high salary in their home country.
        An immigrant must establish a credit history from scratch in the new country. Therefore,
it is usually very difficult for immigrants to obtain credit cards and mortgages until after they
have worked in the new country with a stable income for several years.



                                                   14
ADVERSE CREDIT :-
        Adverse credit history, also called sub-prime credit history, non-status credit history,
impaired credit history, poor credit history, and bad credit history, is a negative credit rating.
        A negative credit rating is often considered undesirable to lenders and other extenders of
credit for the purposes of loaning money or capital.
        In the several, a consumer's credit history is compiled by credit rating agencies, more
commonly referred to as consumer reporting agencies or credit bureaus. The data reported to
these agencies are primarily provided to them by creditors and includes detailed records of the
relationship a person has, with the lender. Detailed account information, including payment
history, credit limits, high and low balances, and any aggressive actions taken to recover overdue
debts, are all reported regularly (usually monthly). This information is reviewed by a lender to
determine whether to approve a loan and on what terms.
        As credit became more popular, it became more difficult for lenders to evaluate and
approve credit card and loan applications in a timely and efficient manner. To address this issue,
credit scoring was adopted.
        Credit scoring is the process of using a proprietary mathematical algorithm to create a
numerical value that describes an applicants overall creditworthiness. Scores, frequently based
on numbers, statistically analyse a credit history, in comparison to other debtors, and gauge the
magnitude of financial risk. Since lending money to a person or company is a risk, credit scoring
offers a standardised way for lenders to assess that risk rapidly and "without prejudice." All
credit bureaus also offer credit scoring as a supplemental service.
        Credit scores assess the likelihood that a borrower will repay a loan or other credit
obligation. The higher the score, the better the credit history and the higher the probability that
the loan will be repaid on time. When creditors report an excessive number of late payments, or
trouble with collecting payments, the score suffers. Similarly, when adverse judgments and
collection agency activity are reported, the score decreases even more. Repeated delinquencies or
public record entries can lower the score and trigger what is called a negative credit rating or
adverse credit history.
        Your credit score is a number calculated based on many factors such as your bank
revolving history, your past ability to pay all your bills on time and more. The complete way in
which your FICO (FICO” actually stands for Fair Isaac and Company, which was the first credit scoring
company. If a consumer is told they’re being turned down because of a low FICO, the lender is referring to
the credit score.) score is calculated is complex. One of the factors in your Fico score is credit
checks on your credit history. When a lender requests a credit score, it can cause a small drop in

                                                   15
the credit score. That is because, as stated above, a number of inquiries over a relatively short
period of time can indicate the consumer is in a financially difficult situation.


CONSEQUENCES OF CREDIT REPORT :-
        The information in a credit report is sold by credit agencies to organizations that are
considering whether to offer credit to individuals or companies. It is also available to other
entities with a "permissible purpose", as defined by the Fair Credit Reporting Act. The
consequence of a negative credit rating is typically a reduction in the likelihood that a lender will
approve an application for credit under favorable terms, if at all. Interest rates on loans are
significantly affected by credit history—the higher the credit rating, the lower the interest, while
the lower the credit rating, the higher the interest. The increased interest is used to offset the
higher rate of default within the low credit rating group of individuals.
        Many countries, in certain cases, insurance, housing, and employment can also be denied
based on a negative credit rating.
        Note that, it is not the credit reporting agencies that decide whether a credit history is
"adverse." It is the individual lender or creditor which makes that decision, each lender has its
own policy on what scores fall within their guidelines. The specific scores that fall within a
lender's guidelines are most often NOT disclosed to the applicant due to competitive reasons. In
the United States, a creditor is required to give the reasons for denying credit to an applicant
immediately and must also provide the name and address of the credit reporting agency who
provided data that was used to make the decision.


MORE THAN ONE CREDIT HISTORY PER PERSON :-
        In some countries, people can have more than one credit history. For example, in Canada,
although most Canadians are not aware of it, every person who applied for credit before
obtaining a Social Insurance Number has two separate credit histories, one with SIN and one
without SIN. This is due to the credit reporting structure in Canada. This can lead to two
completely separate parallel histories, and often leads to inconsistencies (although typically the
person in question will never notice the inconsistencies), because when a lender asks for
someone's credit report with SIN, what the lender gets is different from what he would have
gotten if he asked the report without providing the SIN. This is because, contrary to popular
belief, when someone gets a new SIN for whatever reason, the two credit files are never merged
unless the person requests specifically. As a result, a record with SIN zeroed out is kept
separately from a record with SIN. Note, this happens without the person even knowing it.



                                                  16
             CIBIL-Central Information Bureau (India) Limited

CURRENT SCENARIO :
        In recent years, India has emerged as an increasingly industrialised and fast growing
economy. Liberalization of the economy coupled with a young population has led to increased
incomes and purchasing power, aspirations for a better lifestyle and expectations of higher
quality products and services (a result of increasing influence of international trends and
preference                       for                       international                     brands).
        The average Indian, who had a strong aversion to credit, is now in favour of credit for
convenience in shopping, for financing housing, automobiles and consumer durables and even
holidays. The stigma attached to debt has declined substantially. Consumerism is growing and
the            credit            culture              is           here            to            stay.
        While the market for credit is expanding, it is also getting riskier. Delinquencies are
rising. As the size of the Indian market grows and competition increases, speed in risk
assessment is of utmost importance not only to decide to extend credit but also to decide upon
appropriate pricing. Availability and analysis of credit information is assuming great importance.

        In India, lenders undertake the process of risk assessment independently. Credit
assessment is currently based on insufficient data simply because information on total credit
exposure is not maintained at a central point. This severely limits the scope of these credit risk
assessment processes.
        KEEPING THIS IN MIND THE GOVERNMENT OF INDIA INTRODUCED A SYSTEM
KNOWN AS - “CIBIL”
        The objective of CIBIL's Consumer Credit Bureau is to minimise defaults and maximise
credit penetration and portfolio quality, by providing comprehensive credit information
pertaining to individual borrowers. The Bureau collects credit information from its Members. It
then collates and disseminates, on demand, this information in the form of Consumer Credit
Information Reports (CIR) to aid in the loan appraisal process. CIBIL intends to provide world-
class service while providing both, positive and negative information to Member credit grantors.
        The software for the Consumer Credit Bureau is developed and licensed by TransUnion,
one of CIBIL‘s equity and technical partners. TransUnion is one of the largest consumer credit
bureaus in the world.




                                                 17
The basic Consumer CIR broadly contains:

        Borrower information

            i.   Name

           ii.   Date of birth

          iii.   Identification numbers; e.g. PAN, Passport No., Voter ID No.

          iv.    Address


        Account Information

            i.   Account type

           ii.   Ownership indicator

          iii.   Sanctioned amount

          iv.    Date Opened / Sanctioned

           v.    Date of last payment

          vi.    Current balance

         vii.    Date closed

         viii.   Amount overdue

          ix.    Suit-filed status

           x.    Days past due / Asset classification


FUTURE :
         With state-of-the-art technology and strong technical alliances (with Dun & Bradstreet
and Trans Union), CIBIL aims at offering value-added products, such as credit decisioning and
fraud prevention tools, customized/generic scoring, default probability/prediction products and
risk/profitability models. CIBIL aspires to provide tools of tremendous value to credit grantors in
their credit risk management processes and become the trusted partner of every credit grantor in
India.


                                                18
        The establishment of CIBIL is an effort made by the Government of India and the Reserve
Bank of India to improve the functionality and stability of the Indian financial system by
containing NPAs while improving credit grantors‘ portfolio quality. CIBIL provides a vital
service, which allows its Members to make informed, objective and faster credit decisions.
        CIBIL‘s aim is to fulfill the need of credit granting institutions for comprehensive credit
information by collecting, collating and disseminating credit information pertaining to both
commercial and consumer borrowers, to a closed user group of Members. Banks, Financial
Institutions, Non Banking Financial Companies, Housing Finance Companies and Credit Card
Companies use CIBIL‘s services. Data sharing is based on the Principle of Reciprocity, which
means that only Members who have submitted all their credit data, may access Credit
Information Reports from CIBIL. The relationship between CIBIL and its Members is that of close
interdependence.


BENEFITS DUE TO INTRODUCTION OF “CIBIL” :-

Increased Credit Volumes
        Credit Bureaus facilitate increased lending opportunities for credit grantors while
allowing easier access to credit for borrowers. The existence of credit bureaus in developed
countries has facilitated increased market penetration of credit (to more than 66% as a percentage
of GDP as compared to 3% for India) while keeping non-performing loans in check
(approximately 1% of outstanding credit).

Operating Efficiencies

       Credit Portfolio Quality

        The use of CIRs accessed from a credit bureau will enable credit grantors‘ loan officers to
        accurately evaluate borrower risk by making comprehensive credit histories available to
        decision makers. The CIRs will facilitate an objective and transparent assessment of
        credit applications. Concurrent borrowers and serial defaulters will be identified and
        minimized early in the approval process - consequently reducing associated recovery
        and write-off costs. Similarly, premium borrowers will be identified and serviced faster.
        Ultimately, CIRs will enable Members to judiciously mix relationship-based lending and
        information-based lending. CIRs will serve as the first level of due diligence in the
        appraisal of a credit application.




                                                19
       Speed and Cost

        The use of CIRs will make processing loan applications easier, faster and cheaper by
        sometimes eliminating the need to additionally research and verify borrower details. The
        average loan in India is sanctioned in 2-3 days. A credit grantor using CIRs will be able to
        significantly reduce this turn round time and thus have a competitive edge in the
        marketplace.


Differential Pricing

        Owing to the lack of comprehensive credit information, all borrowers are charged an
interest rate with an assumed level of default risk. This means that all borrowers are charged
identical risk premiums regardless of their payment history and thus pay a premium that in
developed countries is only applied to previously defaulting borrowers. As credit grantors begin
to use comprehensive credit information they will be able to differentiate between good
borrowers and defaulters. In an increasingly commoditized credit market, credit grantors will be
able to use price in order to differentiate their loan products.
        In addition, borrowers who have diligently serviced their loans in the past will be able to
demand cheaper loans in the future. Past defaulters will also have an opportunity to improve
their credit histories by servicing their debt obligations in a timely fashion and thus earn access to
lower interest rates.
        The Indian credit industry has only recently begun to offer differential pricing to their
customers. As the credit environment becomes increasingly competitive, CIRs will play a pivotal
role in the speed and confidence with which credit grantors will be able to increase their business
volume.

Hence, the use of CIRs will prove beneficial to both credit grantors and
borrowers.

Credit Grantors
        The use of CIRs will enable loan officers to make objective and informed credit decisions
quickly, competitively and cost-effectively. The use of CIRs will enable them to increase their
lending volumes and improve the quality of their credit portfolios while reducing their
delinquencies and loan processing costs. This will translate into improved profit margins.




                                                  20
Borrowers

        The widespread use of credit data will provide consumers with fast and easy access to
the lending resources they need while reducing operating and risk costs for credit grantors. These
reduce costs will be passed on to an extent to consumers with demonstrated credit performance
in the form of lower interest rates. This easy availability of reasonably price credit will provide
borrowers with the means to a higher standard of living.

        At present, 157 credit grantors have accepted membership to CIBIL. These include 79
banks accounting for over 90% of the total credit outstanding amongst the commercial banks, 16
HFCs accounting for over 70% of the total credit outstanding amongst the HFCs, 11 FIs
accounting for over 90% of the total credit outstanding amongst the FIs, 2 Credit Card Companies
accounting for over 90% of the total credit outstanding amongst the CCCs, 7 State Financial
Corporations and 42 major NBFCs representing a substantial portion of the credit outstanding of
that sector.



Regulatory & Legal Environment

Reserve Bank of India (RBI), in its continued support of CIBIL, has issued several notifications to
credit grantors covering the following:

       Boards of banks and FIs to closely monitor submission of data to CIBIL

       Penalties could be imposed on banks for non-submission of data

       CIBIL, in consultation with RBI, SIDBI and IBA, to develop a mechanism to facilitate the
        flow of credit to the SME sector

The Credit Information Companies (Regulation) Act‘05 and the Rules & Regulations for the same
have been notified. The legislation has enabled banks to submit data to CIBIL without obtaining
borrower consent.

Consumer Bureau

        The Consumer Bureau was launched on April 5, 2004 with a database of 4 million
accounts contributed by 13 Members. Subsequently, our database has grown over 120 million
accounts contributed by 94 Members. The Consumer Bureau reports are available to Members,
who have submitted all their data to CIBIL in an acceptable format (Principle of Reciprocity).


                                                 21
Commercial Bureau

        The Commercial Bureau, which has credit information on non-individual borrowers, has
been launched on May 8, 2006, with a database of 6.73 Lakh accounts contributed by 37 Members.
Subsequently, our database has grown over 18.6 Lakh accounts contributed by 73 Members. As
per the relevant RBI circulars, CIBIL is already maintaining a database of Suit-Filed accounts of
Rs. 1 Crore and above and Suit-Filed accounts (willful defaulters) of Rs. 25 Lacs and above.
        In its initiative to improve Credit flow to SMEs, CIBIL is being supported under SME
Financing and Development Project implemented by Project Management Division, SIDBI, with
an aim to ensure flow of credit to the under penetrated SME sector while increasing banks‘
profitability and market penetration (via sound credit decisions) and reducing non-performing
loans (via credit information tools).



TYPES OF LOANS AVAILABLE :-
        Various financial institutions look for more and more ways to lend to their customers -
after all, charging interest on a debt is the main way that they make their money. But, with more
and more loans now available, it can sometimes become difficult to know exactly which loan to
apply for. The following explanations try to clear this issue up a little for you:


     Personal Loan :
        Probably the mainstay of financial institutions is the personal loan. As the name suggests,
personal loans are money borrowed from a financial institution for personal use. In nearly all
cases, a personal loan is going to be unsecured, which means you'll likely be paying a premium
on interest. Once the personal loan is given, you repay it by making monthly repayments to the
lender. In effect, this is the multi-purpose loan.


     Auto Loans :
        Auto loans are where you borrow money from a financial institution in order to buy a car
or vehicle. In most cases auto loans are done by the car dealer, but there is no reason why you
cannot make arrangements with your bank before buying the car to borrow the money from
them. As with a personal loan, most auto loans need to be repaid by monthly installments.
Sometimes, although not always, the financial institution will secure your loan with the vehicle,
which means if you cannot repay the loan they'll repossess your car. One additional expense with

                                                     22
an auto loan is that most lenders insist that you take out fully comprehensive insurance during
the period that the auto loan is outstanding.


       Home Improvement Loans :
        As the name suggests, home improvement loans are where you ask a lender to lend you
money so you can improve your home. In most cases a home improvement loan is granted on the
condition that you give the lender a second rank mortgage on your home. As such, the loan
amount can rarely exceed the valuation price of your home - including the increased value after
the improvements have been made. Again, home improvement loans usually need to be paid by
monthly installments; however, balloon (or bullet as they're also know), one-off, payments are
also sometimes accepted.


       Education Loans :
        Education loans are where you borrow money to further your studies. One big difference
between an education loan and any other type of loan is that most education loans, although
given by a financial institution, are underwritten by the government. Consequently, the interest
rate on education loans (also known as "student loans") is usually very low.


       Holiday Loans :
        These days it is even possible to go to your bank and ask them to borrow money so that
you can go away on holiday! As you'll be using the money to go on holiday, this type of loan is
unsecured. Consequently, interest rates are high. Not really a recommended way of paying for
your holiday, but nice to know it's out there if you need it.


       Debt Consolidation Loans :
        Unfortunately debt consolidation loans are becoming more and more popular these days.
A debt consolidation loan is where you have too much debt on store cards and credit cards and
you need to borrow money to pay these all off and consolidate them into one big debt. The
advantages of doing this are two-fold: (i) hopefully you'll lower the borrowing interest rate; and
(ii) you only have to deal with one creditor.




                                                  23
                          COLLECTION IN INDIA

FAIR PRACTICES IN DEBT COLLECTION IN INDIA :-
1.   In the matter of recovery of dues, banks / NBFCs may ensure that they, as also their agents,
     adhere to the extant instructions on Fair Practice Code for lenders (circular DBOD. Leg. No.
     BC. 104 /09.07.007 / 2002–03 dated May 5, 2003) as also IBA‘s Code for Collection of dues
     and repossession of security. In case banks / NBFCs have their own code for collection of
     dues it should, at the minimum, incorporate all the terms of IBA's Code.
2.   In particular, in regard to appointment of third party agencies for debt collection, it is
     essential that such agents refrain from action that could damage the integrity and reputation
     of the bank / NBFC and that they observe strict customer confidentiality. All letters issued by
     recovery agents must contain the name and address of a responsible senior officer of the
     card-issuing bank whom the customer can contact at his location.
3.   Banks / NBFCs / their agents should not resort to intimidation or harassment of any kind,
     either verbal or physical, against any person in their debt collection efforts, including acts
     intended to humiliate publicly or intrude the privacy of the credit card holders‘ family
     members, referees and friends, making threatening and anonymous calls or making false and
     misleading representations.
     Redressal of Grievances:
            Generally, a time limit of sixty (60) days may be given to the customers for preferring
             their complaints / grievances.
            The card issuing bank / NBFC should constitute Grievance Redressal machinery
             within the bank / NBFC and give wide publicity about it through electronic and
             print media. The name and contact number of designated grievance redressal officer
             of the bank / NBFC should be mentioned on the credit card bills. The designated
             officer should ensure that genuine grievances of credit card subscribers are redressed
             promptly without involving delay.
            The grievance redressal procedure of the bank / NBFC and the time frame fixed for
             responding to the complaints should be placed on the bank / NBFC's website. The
             name, designation, address and contact number of important executives as well as
             the Grievance Redressal Officer of the bank / NBFC may be displayed on the
             website. There should be a system of acknowledging customers' complaints for
             follow up, such as complaint number / docket number, even if the complaints are
             received on phone.


                                                  24
If a complainant does not get satisfactory response from the bank / NBFC within a maximum
period of thirty (30) days from the date of his lodging the complaint, he will have the option to
approach the Office of the concerned Banking Ombudsman for redressal of his grievance/s. The
bank / NBFC shall be liable to compensate the complainant for the loss of his time, expenses,
financial loss as well as for the harassment and mental anguish suffered by him for the fault of
the bank and where the grievance has not been redressed in time.


Internal control and monitoring systems :
        With a view to ensuring that the quality of customer service is ensured on an on-going
basis in banks / NBFCs, the Standing Committee on Customer Service in each bank / NBFC may
review on a monthly basis the credit card operations including reports of defaulters to the CIBIL,
credit card related complaints and take measures to improve the services and ensure the orderly
growth in the credit card operations. Banks / NBFCs should put up detailed quarterly analysis of
credit card related complaints to their Top Management. Card issuing banks should have in place
a suitable monitoring mechanism to randomly check the genuineness of merchant transactions.


Right to impose penalty :
        The Reserve Bank of India reserves the right to impose any penalty on a bank / NBFC
under the provisions of the Banking Regulation Act, 1949 for violation of any of these guidelines.


ROLE OF BPOS IN INDIA AS AN INTERNATIONAL COLLECTION
AGENCIES :-
        Dozens of young Indians are on the telephone, calling Americans, Australians and UK
people out of work, forgetful and debt-stricken and asking for cash.
        ―Are you sure that‘s all you can afford?‖ one operator in a row of cubicles asks politely.
―Well, how do you take care of your everyday expenses?‖ presses another.
        Americans are used to receiving calls from India for insurance claims and credit card
sales. But debt collection represents a growing business for outsourcing companies, especially as
the American economy slows and its consumers struggle to pay for their purchases.
        Armed with a sophisticated automated system that dials tens of thousands of Americans
every hour, and puts confidential information like Social Security numbers, addresses and credit
history at operators‘ fingertips, this new breed of collectors is chasing down late car payments,
overdue credit card debt and lapsed installment loans. Debt collectors in India often cost about




                                                 25
one-quarter the price of their American counterparts, and are often better at the job, debt
collection company executives say.
         ―India will be the only place we grow this year,‖ said J. Brandon Black, the chief
executive of the Encore Capital Group, a debt collection company based in San Diego. India is the
company‘s largest operating area, with about half the company‘s collection force of more than
300.
         Although the stereotype of a collector may be ―some guy with chains and a cut-off shirt,‖
Mr. Black said, collectors in India are ―very polite, very respectful, and they don‘t raise their
voice.‖ He added, ―People respond to that.‖
         Companies like Encore buy bad loans from banks and credit card issuers for pennies on
the dollar and pocket the cash they collect. The delinquent borrowers often owe at least a
thousand dollars.
         So far just a tiny fraction, maybe 5 percent, of American debt collection is done outside
the country, industry executives estimate. But new business is in the pipeline.
         Financial services clients are saying, ―We want you to collect my debt, to analyze it and
change the way that we sell‖ the loans, said Tiger Tyagarajan, executive vice president at
Genpact, the business processing company spun off from General Electric that has roots in India.
Genpact, which works with lenders to get customers to pay, rather than buying loans directly like
Encore, employs thousands of debt collectors in India, Romania, Mexico and the Philippines, and
is hiring in all those locations.
         In the past, the prevailing wisdom about wringing money from late payers has been ―if
you‘re calling the Midwest, you want someone from the Midwest to twist their arm,‖ said Mark
Hughes, an analyst with Sun Trust Robinson Humphrey who covers the industry. That theory is
changing as the pool of trained phone professionals in India and other locations deepens, and
companies look outside the United States for lower costs.
         Telephone debt collection represents new, more aggressive territory for India. ―This is
really a sales job,‖ Mr. Hughes said. ―It is commission-intensive, and you‘re paid on your ability
to collect.‖
         Like many sales teams, Encore‘s collectors in India gather for a daily pep talk before their
shift. In one recent session, they were schooled on the intricacies of American tax policy.
         ―One hundred thirty million U.S. families will get a tax rebate this season‖ as part of the
new economic stimulus package, Manu Sharma, the team leader, explained to a roomful of top-
earning collection agents, most in their 20s. Those who qualify for the rebates will get as much
$600 a person or $1,200 a household, he said, and ―the I.R.S. is going to start paying this money in
May.‖

                                                 26
        Start bringing up the rebate during calls, he told them. ―This gives you an advantage so
you can increase your wallet share,‖ he went on. ―Get them set up on minimum balance
arrangements‖ based around their tax rebates.
        Once the calls start flowing, Encore‘s Gurgaon office resembles nothing less than the
headquarters for an enthusiastic fund-raising telethon. Just minutes after collectors have put on
their headsets, a supervisor yells out ―Rajesh, for $35 a month for three months.‖ All employees
enthusiastically respond by clapping three times, and Rajesh is the first on the day‘s sales board.
        Companies like Encore often schedule dozens of payments and make dozens of calls
before the loan is paid off.




                                                 27
   CASE STUDY ON “CITIBANK COLLECTION PRACTICES” :

Foreword :
        The GCB India Collections Code of Conduct outlines minimum requirements that need
to be adhered by the Citibank N.A. / authorized representative when contacting a customer for
due payments. These requirements are also aligned to the minimum Standards of banking
practices for banks set by BCSBI (The Banking Code and Standards Board of India). Citigroup
Global Services Limited, a 100% owned subsidiary of Citigroup contacts customers on behalf of
Citibank N.A.. Besides Citigroup Global Services Limited, other Third Party Vendors also contact
customers on behalf of Citibank N.A. The code is a mandatory requirement for all who contact
the customer on behalf of Citibank N.A.


1.0 Summary
        All customers (including customers who are late in paying or in default) must be treated
with respect, dignity, courtesy and fairness in debt collection efforts. Citibank believes this is not
only the right thing to do, but also the most effective. It is imperative that all persons involved in
collection related activities follow this policy. All Customer Assistance Specialists (CAS) must
agree to abide by this policy and the detailed policy described below prior to beginning collection
activities with respect to the Customers. This policy applies to all employees of Citigroup
including Citigroup Global Services Limited and/or other affiliates and employees/agents of
companies that may be retained to collect on consumer debts on behalf of Citibank NA in India.
You must read, understand and agree to abide by these guidelines prior to beginning collections
on debts owed by the customers. Failure to comply will result in disciplinary action and may
result in permanent termination of employment and or business with Citigroup Global Services
Limited / Citibank NA. The following are the core underpinnings of the collection process. These
are an extract of the Citibank Collection values. For greater detail please see the following pages:
1. Customers deserve to be treated with dignity. Customer Assistance Specialists should always
remain professional during telephone conversations and visits. No written or verbal threats,
abuse or rudeness is permitted. Customer Assistance Specialists should use only acceptable
business language, even if the other party does not.
2. Customer Assistance Specialists deserve to be treated with dignity. They may refer the
customer to management, or end calls when a customer becomes abusive or threatening.
Customers should be informed prior to termination of such calls. All calls where the customer
becomes abusive or threatening should be appropriately documented.


                                                 28
3. Customer Assistance Specialists should always identify themselves and the
company at the beginning of every interaction with customers.
4. Customers are entitled to privacy. Privacy policies apply to all conversations with third parties,
as stipulated in this document
5. All collection activities should be consistent with the guidelines provided in this document. All
letters, telegrams and other communication must be in the format approved by compliance
and/or Citibank legal counsel.
6. Customers should be called only between 07.00 Hrs and 19.00 Hrs unless exceptional
circumstances described in this Code warrant deviation from this timeframe. Under no
circumstances, customer can be called beyond 21.00 hrs.
7. Customers should be called no more often than is reasonable in the context of the debt, and the
conversations logged on the system.
8. Customer requests that calls/visits to place of work be stopped are to be honored if he/she
provides a suitable alternate where he/she may be reached during collection working hours.
Such customers should be asked to provide an alternate address/phone number where they may
be reached.
9. Customer‘s questions should be answered in full. They should be provided with information
requested, given assistance and issues resolved. Accounts with
unresolved issues are to be escalated to management.
10. Customer or third party requests for supervisor names or requests to speak with supervisor
should always be honored.
11. Customer Assistance Specialist notes on the system should be clear, concise, accurate and free
of editorial comments. All attempts, contacts, conversation
and actions are to be noted on the collection system.


2.0 Why you may contact a customer
A customer is to be contacted for debt collection only under the following circumstances:
       When not doing so may impose an additional cost on the customer or may impact the
        customer‘s credit history/rating – e.g. customer spending pattern indicates that the
        customer may be about to breach his/her credit line;
       When the customer has not paid on payment date (including grace days) and this is
        likely to impact the customer‘s credit history and/or is likely to cause a financial loss to
        Citibank.




                                                 29
3.0 When you may contact a customer
         It has been Citibank‘s experience in India that individuals with full-time employment
routinely are awake by 06:00 hrs. in order to be at their jobs at the time required. Accordingly
calls must normally be limited from 07.00 hrs. to 19.00 hrs. A customer may be contacted beyond
19.00 hrs. till 21.00 hrs. on :
1. Phone, if customer has not been contactable within last 48hrs.
2. On personal visit, if the customer has been non contactable during last
two visits. A customer may be contacted at a time when the call is not expected to inconvenience
him/her. In addition, if a mobile number is called and the customer is driving, then the call may
be discontinued, in the interest of safety.
Calls either earlier or later than normal hours, while effective in contacting the
customer, are also likely to be inconvenient to the customer and could be viewed as harassment.
Calls earlier or later than the prescribed time may be placed only under the following conditions:
         • When the customer has expressly authorized Citigroup Global Services Limited/
         Citibank NA to do so either in writing or orally;
         • When attempts to contact the customer have resulted in information that the customer
         is normally only available outside these hours and no alternate telephone number is
         available to contact the customer.
         • When due to nature of customer‘s employment i.e. working in shifts e.g.: Call Centers,
         Hotels etc, he/ she is usually available outside these hours.


3.1 Where you may contact the customer
         The first visit to contact the customer should be at his place of residence/ mobile.
However, other telephone numbers like employment may be used. When the Collection Unit is
unable to contact the customer at his residence/ mobile, the customer may be contacted at
his/her other address or number/through borrower or referee or guarantor. In addition
automated systems that choose the best time and best number to attempt to contact the customer
may be used.


4.0 Which language should we use in the interaction?
         A Customer Assistance Specialist should try and use the language with which the
customer is comfortable. The Customer Assistance Specialist must not attempt to force the
customer to speak in English if he/she is not comfortable. This may be offensive to some
customers. If the Customer Assistance Specialist is not comfortable with the language spoken by
the customer, the account may be referred to another Customer Assistance Specialist or the

                                                  30
conversation should be continued in English/alternate language explaining the reason to the
customer. If the customer expresses his inability to understand the call must be referred to a
supervisor.


4.1 What mode of Address is to be used?
        Customer Assistance Specialist should use the formal mode of address in the language of
choice of the customer. Customers deserve to be treated with dignity. Accordingly, Customer
Assistance Specialists must be professional. As the situation requires, they may also be assertive
and firm. In any event, courtesy and respect are mandatory. Customer Assistance Specialists may
not become abusive, visibly irritated or demean the customer in any fashion.



4.2 How often should the customer be called?
        The purpose of a collection call is to bring to the customer‘s notice the obligation and to
seek a commitment to pay on a specified date. Once a promise is elicited, a call may be made to
serve as a reminder and for confirmation of payment. In the event a commitment is not
forthcoming or has been broken, calls may be made at reasonable frequency, based on amount
owed, product, aging of debt and account history. Excessive number of calls or calls closely
bunched together in the same day may be construed to be harassment.



5.0 Can the customer’s debt obligation be discussed with anybody else?
        Citibank NA respects a customer‘s privacy. The customer‘s debt/obligation may
normally be discussed only with the customer and co borrower/supplementary cardholder or
the co-signatory of the loan agreement, loan guarantor, and the employer in cases of corporate
cards or corporate facilitated loans.
        In certain cases the customer may specifically authorize us in writing to discuss the
customer‘s debt with a particular third party, such authorization should be recorded on the
collection system as and when the customer provides it. In such a scenario, where a record of
such permission is available on our collection system and the status card, we may leave a
message /disclose /receive payment from such third party specifically authorized by the
customer. However, we will not attempt to collect from this third party. This will not become a
collections call. As per the terms and conditions customer debt details can be discussed with
Regulatory/Law enforcement agencies as well as third party service providers who are
contracted with to provide debt collection and support services. Customer Assistance Specialists
may always communicate with a third party about the customer‘s debt when and to the extent


                                                31
doing so is necessary to enforce a decree obtained in a lawsuit against the customer. In addition
in certain circumstances, as explained below, it may be necessary to discuss some parts of the
past due obligation with related third parties.
5.1 Leaving messages and contacting persons other than the customer at the
telephone numbers/addresses provided by the borrower or made available to us as a result of
trying to contact borrower.
        Calls must first be placed to the customer. In the event the customer is not available, a
message may be left for the customer to an adult family member. The aim of the message should
be to get the customer to return the call. Ordinarily, the message text should be restricted to:
―Please leave a message that XXXXX (Name of officer) from Citigroup Global Services Limited
International and/or Collection Agency called and request him to call us back at ZZZZZZ (phone
number)‖. As a general matter, the message must not indicate:
That the customer is overdue on his/her obligation; or
That the call originates from the Collection Unit.
Leaving Message criterion for Credit Card, Ready Cash, Ready Credit and Auto Loan:
If the customer has not responded to at least one prior message in the format
mentioned above AND account is more than 15 DPD, then it is permissible in follow up calls
(placed at customer specified telephone number/address) to include:
i) The fact that the call pertains to a credit card/other obligation of the customer.
ii) To state/indicate that the customer is overdue on his card/loan account
iii) To state/indicate the amount due and requesting for a payment to be made by the customer.
However, under no circumstance can any third party be asked to make a payment. Leaving
Message criterion for Equity Advance and Mortgage Advances: Collections can disclose the
loan obligations only to the customer, co-borrower or the co-guarantor.
For these loans, even if the customer has not responded to a prior message, it is NOT
PERMISSIBLE TO
i) To indicate that the call pertains to the loan obligation of the customer.
ii) To state that the customer is overdue on his loan account.
iii) To state or indicate the amount due or request the customer to make a payment.
5.2 Leaving messages and contacting the third party - For customers not
available at the provided telephone numbers/ addresses.
        Following approach is adopted, in the situations mentioned below, where the messages
may be left at telephone number/address with an adult family member. Message is on telephone
number/ address other than those provided by the customer. In situations where the customer
has alienated the vehicle/ mortgage financed/pledged to a third party and is not making

                                                  32
repayments despite recall of loan, the Collection Unit may disclose to such third party the fact,
that the customer has an overdue obligation and repossess the vehicle/ mortgage. This should be
done after notifying the customer through a letter sent at the address available on the system. If
such third party, who is in possession of the vehicle/ mortgage on behalf of the customer, offers
to make a payment towards the loan outstanding, we can receive the payment from the third
party.
         Customer Assistance Specialists may communicate with third parties to obtain
customer‘s location information - home address, business address, home phone number and
workplace phone number. This may be done when the customer‘spresent location is either
unknown or uncertain or the customer is not contactable or a skip. While obtaining such
information the Customer Assistance Specialist must clearly identify himself/herself. In specific
cases where it may be difficult to obtain information from third parties regarding customer‘s
whereabouts by identifying the organisation along with the name, the Customer Assistance
Specialist may choose not to mention the organisation name while identifying himself/ herself,
unless specifically asked for the same. If the customer has provided a financial guarantee from a
third party, the third party may be called and the customer‘s obligations discussed. In such a
situation, the guarantor may be treated as the borrower. Further, if the customer is deeply
delinquent (more than or equal to 2 months behind on his/her repayment) or non-contactable or
a skip then customer‘s debt/obligation may be discussed with references provided.


6.0 No misleading statements/misrepresentation are permitted
Customer Assistance Specialists should not -
• Mislead the customer on the action proposed and consequences thereof;
• Mislead the customer about their true business or organization name, or falsely
represent or imply that the Customer Assistance Specialist is an attorney (lawyer), government
official, officer of any court etc.;
• Threaten with imprisonment or even mention imprisonment unless legal action planned or
currently underway could result in imprisonment;
• Threaten with arrest/detention by the police unless, prima facie, the customer‘s actions indicate
criminal intent that could lead the police to arrest/detain – for example, if a customer has sold
the automobile financed or has falsified documents at the time of application, the customer may
be prosecuted leading to arrest/detention.




                                                33
6.1 Gifts or bribes
        Customer assistance Specialists deserve to be treated with dignity. They should refer to
management or end calls when the customer or third party is abusive or
threatening. Customer assistance Specialists should inform the customer that the call would be
terminated prior to ending the call. All calls, where customer becomes abusive or threatening
should be documented on the collection system and reported to management. Customer
assistance Specialists may not accept gifts from customers or bribes of any kind. Any Customer
Assistance Specialist offered a bribe or payment of any kind by a customer must report the offer
to his/her management.
7.0 Precautions to be taken on visits
• Residence
Customer Assistance Specialists should:
• Respect personal space – maintain adequate distance;
• Not enter the customer‘s residence against his/her wishes or when they are told the customer
is not at home;
• Not restrict the customer‘s movement or restrain him/her from entering or leaving the
house/room;
• Not remain in the customer‘s house if he/she were to leave for any reason including to collect
money from a bank/elsewhere;
• Respect the customer‘s privacy – do not embarrass the customer in the presence of his/her
neighbors;
• Not make visits at the customer‘s residence if the customer;
– Expressly forbids in writing such visits and provides suitable alternate address
where he/she is connectable during collections working hours;
– Has suffered a bereavement, or a customer‘s family member is gravely ill;
– A social engagement is in progress.
• If the customer is not present and only minors/elderly/infirm are present at the time of the
visit, the Customer Assistance Specialist should end the visit with a request that the customer call
back. He should not enter the house unless invited. He should not wait for the customer in the
customer‘s residence unless specifically asked to do so by the customer or family
• Workplace
Customer Assistance Specialist should:
• Not visit the customer in the office unless:
– The customer has specifically requested the CAS to do so
– The customer‘s mailing address is that of the workplace;

                                                 34
• Respect personal space; do not restrict the customer‘s movement.


7.1 What is to be done if the customer requests us to stop visiting at the office?
        In such a case, the customer should be asked to provide an alternate location where the
meeting can take place during the working hours of the Collections Unit. However, if the
customer is not available at this location and attempts have been made to contact the customer,
the customer may be contacted at his/her office again.


7.2 A Customer Assistance Specialists should not:
• Offer to assist the customer by driving him/her to the bank/any other spot from where money
to repay the debt can be collected;
• Have discussions of a personal nature with the customer – Maintain a professional distance.
Restrict conversation to the debt owed and the customer‘s proposed repayment plan;
• Use means that are unfair, for example –
– Collect sums in excess of total debt of the customer;
– Threaten to take extra judicial action (e.g. physical threat or any unlawful action) to expropriate
and dispose of customer assets when no such right exists;
– Apply payments to other accounts than those indicated by the customer.


8.0 What is to be done if the customer declines to pay?
If the customer declines to pay, the consequences of such a decision are to be
explained to him/her:
• Impact on credit history;
• Possible inclusion in negative list of Master Card / Indian Bankers
Association;
• Possible legal action and its impact;
• Cost of defending legal action, if such action is contemplated.
Should the customer refuse to pay on the account, then such accounts must be
referred to the Supervisor. The Supervisor shall, after discussing with the Agency
Managers allocate the account appropriately. Further calls on the customer who
communicates in writing his/her refusal to pay may follow an escalation matrix as below:
• Agency Manager
• Unit Head
• Regional Collection Head
• Country Collection Head.

                                                 35
9.0 What is to be done if the Customer disputes the debt?
           The account must be referred to the Customer Service Unit for resolution of the
dispute through the Supervisor. In the event, the customer disputes only a part of the debt,
collection calling may continue for the remainder.


10.0 Other important aspects - Appearance & dress code:
           Customer Assistance Specialists must be appropriately dressed –
For men this means
– Trouser
– Shirt,
– Well groomed appearance


11.0 How should letters & other communication be handled?
           Communication to the customer either through mail or through telegrams shall be
handled directly by Citibank as appropriate. Mail dunning / telegrams / phonograms shall be in
a format approved by Compliance Unit of Citibank. All such mail shall be in envelopes that do
not bear any marking on the outside to indicate their content (aside for origin – Citibank and
return mail address). Postcards/other open media are not to be used.


12. Repossessions
           Bank‘s Security Repossession Policy aims at recovery of dues in the event of default and
is not aimed at whimsical deprivation of the property. The policy recognizes fairness and
transparency in repossession, valuation and realization of security. All the practices adopted by
the bank for follow up and recovery of dues and repossession of security will be inconsonance
with the law.
           Repossession of Security is aimed at recovery of dues and not to deprive the borrower of
the property. The recovery process through repossession of security will involve repossession,
valuation of security and realization of security through appropriate means. All these would be
carried out in a fair and transparent manner. Repossession will be done only after issuing the
notice as detailed above. Due process of law will be followed while taking repossession of the
property. The bank will take all reasonable care for ensuring the safety and security of the
property after taking custody, in the ordinary course of the business.
Valuation and Sale of Property: Valuation and sale of property repossessed by the bank will be
carried out as per law and in a fair and transparent manner.

                                                  36
12.1 Repossessions for Auto
• Repossession agencies are responsible for retrieving collateral where self-help
remedies are lawful. To ensure sufficient help to load, transport and dispose of
property, Repossession agency representatives may visit the customer/custodian at the site of the
car in group of 3/5 as required
• Repossession agencies should clearly communicate to the customer /
occupant/custodian of the vehicle that the vehicle is being repossessed as per the
terms and conditions of the signed contract and as per the notification to the
customer. The agency should offer use of their cell phone to get the driver/occupant to call the
borrower.
• Repossession agency should neither threaten to nor use physical force to dispossess the
customer/occupant of the vehicle. All the relevant points articulated in this document regarding
norms of behavior are to strictly observed while interacting with the customer/occupant
/custodian.
• Where the occupant of the vehicle include any of the following:
• Women / Girls / Children
• Elderly or infirm
• Physically or mentally challenged person.
The Repossession agencies should ensure that the occupants of the vehicle are
escorted to a nearby location, convenient to the occupants. If the above categories of occupants
are the only occupants in the car, the repossession should not be done,
• If the car is in motion then the discussion with the custodian /driver/occupant of the car
should only be initiated once the car halts at a destination on it‘s own (not at a traffic light). No
attempt should be made to block the passage of the car to bring it to a halt; such obstruction will
be strictly prohibited and must not be done.
• Repossession Teams must ensure that there is no damage to the vehicle and it‘s
contents while conducting the repossession. All contents will be duly recorded in the numbered
inventory sheet available in the numbered repossession file.
• Pre and post intimation will be made at the concerned local police station. All
documents in the repossession file including ‗due diligence/compliance‘ checklist will be
completed by the agency representative conducting the repossession.
• No repossession will be done without an authorized, valid repossession documents.
• All Repossessions will be conducted between 0700hrs and 1900hrs unless it is


                                                 37
impossible to repossess a vehicle during the said time. The reason for repossession outside this
time should be documented.


12.2 Repossessions for Mortgages
Policy on Security repossession shall come into effect post the customer loan
becoming a Non Performing Asset (NPA) on the bank‘s books i.e. the customer‘s loan is 90 days
overdue and all efforts to regularize it have failed.


12.2.1 Notice
A Notice u/s 13(2) of SARES will be issued to the borrower, co-borrower and
guarantor. The Notice will be sent to the mortgaged property address and other addresses
provided on the application form.


12.2.2 Possession
The customer will be allowed 60 days post issuance of the notice to regularize the
account or come forward to settle the account. If the customer does not respond in accordance
with the point mentioned above, an authorized officer of the bank will visit the mortgaged
property and ask for the payment of outstanding dues from the borrower as mentioned in the
notice. If the borrower refuses to pay then the authorised officer will ask for the physical
possession of the mortgaged property by handing over the demand possession notice to the
borrower or the Agent empowered on behalf of the borrower to receive the notice. The physical
possession of the property shall be taken in a peaceful manner.


12.2.3. Voluntary surrender of immovable property
The customer will be requested to sign a surrender letter.
The punchnama will be signed by the authorized officer, two independent
witnesses and the customer. An inventory list will be made for all the articles found in the
mortgaged property. The customer will also have to give a written declaration that all his
valuables like jewellery, cash etc has been retrieved by him. This also needs to be signed by the
authorized officer and two independent witnesses.


12.2.4. Possession of immovable Property.
Punchnama will be signed by the authorized officer of the bank and two
independent witnesses. In case the borrower refuses to hand over the property then a complaint
will be made before the Chief Metropolitan Magistrate/ District Magistrate. The Chief

                                                  38
metropolitan Magistrate/ District Magistrate will appoint an officer for taking the possession of
the property. Before the physical possession of the property the court order needs to be
communicated to the local police asking for assistance. An inventory list will be made for all the
articles found in the mortgaged property. The customer will have to give a written declaration
that all his valuables like jewellery, cash etc has been taken by him.


12.2.5. Sale of Secured Assets
The Bank shall proceed with the Auction of the attached property post 30 days of
taking possession of the property, in the event, that the customer does not come
forward and settle the loan. The Bank shall send the customer a letter intimating him, of the
venue of the sale indicating date and time of the Auction / Sale.
The bank will consider handing over possession of property to the borrower any
time after repossession and before concluding sale transaction of the property,

provided the bank dues are cleared in full. In case of a settlement by the
customer, the property documents will be released to the customer within 30
days of the receipt of payment of the total settlement amount.


12.2.6. Appeal Against The Bank’s Attachment
The SARFAESI act gives the customer the right to appeal against a possession order only in DRT.


12.2.7. Recovery Of The Balance Amount
The Bank shall move an application before the Debt Recovery Tribunal for recovery of any
balance due on the loan account after adjusting dues from the sale proceeds.


12.2.8. Refund Of Balance Amount
Any excess amount obtained after adjusting the dues on the Loan shall be refunded to the
borrower within 30 days.




                                                 39
                      DEBT COLLECTION IN INDIA :-
        The issue of NPAs (Non Performing Assets) is not as simple. NPAs are caused due to
various reasons. Many can be genuine too.
Repayment of loans depends on two things;
(1) Ability to pay
(2) Willingness to pay
Like in the Mid-1990s, post liberalization in India, several Indian small businesses died out.
Consequently, the banks that had lent to these businesses had to face high NPAs. ‗Farm credit‘
still does not get the kind of importance it should get. Farmers in India heavily depend upon the
rainfall, in turn their lenders have to bare the risk.
        The nexus between promoters of companies and the bank officials is also evident. Even if
a project is not bankable (lendable) the loan officers could somehow pass it through for self-
interests. Also political pressure can also play a huge role in disbursement of funds. Many of the
Cooperative banks have been abused by the interference of politicians.
        Banks also resort to ever-greening of loans i.e. reissue an existing loan as a fresh loan, in
order to show lower NPAs on paper.
        We need a more transparent system. A credit score should be ascertained for borrowers.
For this banks need to collaborate and share information on borrowers. Also measures should be
taken to make loan officers more accountable to the lending they approve.
        Even banks have gone to extremes to recover money. Some send goons, or call up and
abuse over the phone. Recently (Feb 2007) a branch of ICICI Bank in Southern India was shut
down. Incidentally, the branch had a defaulter who had not repaid 4 installments of Rs.1000.
Allegedly, the goons sent by one of the agencies attacked the couple with swords.
A balance needs to be striked between slackness and harshness.
        Hence banks and financial institutions have been experiencing considerable difficulties in
recovering loans and enforcement of securities charge with them. The procedure for recovery of
debts due to the banks and financial institutions, which is being followed, has resulted in a
significant portion of the funds being blocked. Some 77% of the bank‘s loans have gone bad - this
amounts to $6.13m of irrecoverable money.
        The defaulters bribe the loan recovery officials- so it is corruption surrounding recovery
that is a greater cause of bad debts than granting loans to bad prospects. The marriage market is
most efficient is tracing flows of wealth so you will find men with such jobs rewarded with
higher dowry than those in private air-conditioned banks.

                                                   40
         As a result most banks in India have decided to publicly shame defaulters in order to
recover outstanding loans. Employees of the Urban Co-operative Bank in the eastern state of
Orissa have begun staging noisy demonstrations outside the home of defaulters.
         Armed with posters, they kicked off the loan recovery drive outside the homes of two
defaulters last week. Officials say this is the final resort for the bank which is facing problems
over mounting bad loans.
         Also, the lending specialists approving and disbursing these loans should be
investigated, and in a lot of cases, fired, considering the outrageously high bad debts
accumulated by the bank. What were these loans drawn against? Most of the defaulters have
assets to cover the loan. If not, they should be black-listed using credit-rating systems available to
all major financial and lending services institutions nation-wide.
         At the same time, keeping in mind the afore-mentioned codes of banking practice, I
believe these ―harassed‖ customers would be able to seek legal recourse in many parts of the
world.


MODE Of RECOVERY UNDER INDIAN LAW :-
Recovery of money against supply of goods , commercial transactions and other related business
matters by and against companies, partnership firms, sole proprietorship and other business
enterprises have the following modes under:
1.   Civil Proceedings
        Recovery suits in Civil Courts leading to Execution Proceedings
        Summary Suits where the recovery is based on cheques, promissory notes, contract and
         guarantee
        Suits for Specific Performance of Contracts
        Winding up petitions in case of companies
        Arbitration Proceedings
        Appeals, Revision and Writ proceedings in High Courts and Supreme Court
2.   Criminal Proceedings
        Criminal Complaint under Section 138 of Negotiable Instrument Act in case of dishonor
         of cheques
        Criminal case in case of cheating, fraud, forgery of documents




                                                 41
                           CONCLUSION & SUMMARY

Thus from the Project we can infer various terms:
        We under stand the importance of collections. How through various cutting edge
approach, collections converts delinquent accounts into paid accounts.
        Experienced Collections Agencies have experience in transforming delinquent accounts
into paid accounts. They help to improve the bottom lines of medical practices, national retail
chains, agricultural interests, and local merchants with multiple locations.
        Collections are an inevitable part of any company's receivables, and quick recovery of
outstanding debt improves the financial position of the company and reduces the possibility of
Non-performing assets.
        Various Collections agencies provide services to companies who outsource their
collection business. Thus without alienating customers, clients, or patients of that company or
hampering the business of those companies, they increase the cash flow.


Hence we can conclude that:
        Bad debt is a serious matter for any company. It has been known to ruin otherwise
successful concerns. However, it is essential to ensure that your debt collection activities result in
payment of the outstanding amounts, without damaging your customer relations. This intensive
1-day training course will enable you to do just that. You will learn to understand the importance
of credit control and debt collection, plan an effective debt collection programme and acquire
proven techniques for written and telephonic debt collection.


Course Outline :

Understanding company credit and debt :
       Reviewing the credit cycle from application to payment

       Identifying possible causes of outstanding payments

       Assessing the impact of outstanding debt on your company's financial results




                                                 42
      Identifying ways in which you can motivate your customers to pay their outstanding
       debts

Debt collection as a vital financial activity :
      Completing debtor reports as an effective debt management tool

      Setting definite and realistic debt collection targets

      Comparing your debt collection results to your initial objectives

      Analysing the return-on-investment of your debt collection activities

Planning and preparing for effective debt collection :
      Classifying your debtors to enable a well-targeted approach

      Using the debtors classification to analyse the potential risk each debtor poses to your
       company

      Drawing up a collection checklist to facilitate systematic collections

      Making use of a customer card system as a comprehensive record of all debtors' histories

      How do you decide whether to collect the debt by telephone or by letter?

Ensuring the success of your debt collection correspondence :
      Understanding the essential elements of debt collection correspondence

      Paraphrasing the "pay up or else" threat in a more effective and customer friendly
       fashion

      Acquiring essential skills for compiling debt collection letters, telegrams, e-mails and
       faxes

      Addressing your correspondence to the correct person to guarantee results

Essential telephone techniques :
      Ensuring that you are sufficiently prepared before dialling the number

      Understanding professional telephone procedure

      Dealing with angry customers and excuses

      Overcoming personal and company objectives

                                                 43
      Turning promises into commitments to pay

      Using agreed payment dates and reminders to ensure that the debt is paid

      Learning how to close calls amicably

Who should attend ?
      Debt and Credit Controllers

      Debt Recovery Agents

      Credit Supervisors and Managers

      Debt Collection Managers

      Debtors Clerks

      Debt Collectors

      General Managers of small and medium enterprises.




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                                 Bibliography

1.   http://en.wikipedia.org
2.   http://www.nytimes.com
3.   http://www.indiadebtrecovery.com
4.   http://www.intellicomcenters.com
5.   http:// www.online.citibank.co.in
6.   http://indianeconomy.org




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