CIBIL, Fair Practices Code for Debt Collection, BCSBI: An Overview

CIBIL, Fair Practices Code for Debt Collection, BCSBI

Dear bankers,

As we all know that  is CIBIL, Fair Practices Code for Debt Collection, BCSBI  for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the CIBIL, Fair Practices Code for Debt Collection, BCSBI (Unit-8), Indian Financial system (Module A), Principle & Practice of Banking JAIIB Paper-1.

♠CIBIL (Credit Information Bureau (India) Limited)

  • CIBIL (Credit Information Bureau (India) Limited) is a Credit Bureau or Credit Information Company. This company is engaged in maintaining the records of all the credit-related activities of companies as well as individuals including credit cards and loans. The registered member banks and several other financial institutions periodically submit their information to CIBIL. Based on the information and record provided by these institutions, CIBIL issues a CIR (Credit Information Report) as well as a credit score.
  • Govt. of India enacted an Act called credit Information Companies (regulation) Act in 2005. Soon thereafter the RBI issued notification regarding the framework for functioning of credit information bureaus.
  • As on date the RBI has issued authorization to 4 credit information companies to operate. A credit information company (CIC) or popularly known as credit bureau collects the credit information from bank and other lenders, prepares a credit history, compiles credit scores and thereafter provides the information on a particular proponent to the lender for a fee. The information provided by CIC helps the lender to take an objective decision, quickly, based on the information which include data such as loans credit card facilities availed from one or different lenders, re-payment record, current balance on each of the facility, new credit hungry), defaults in repayment of dues, suit filed information etc.

♣Membership to a CIC

  • Credit Institutions (Banks, RRBs, Co-operative banks, NBFC, Public Financial Institution, Housing Financial Institution etc. Companies engaged in the business of credit cards and other similar cards and companies dealing with distribution of credit in any other manner or any other institution which the Reserve Bank may specify, from time to time, for this purpose), Insurance Companies, Companies providing cellular or telephone services, Credit Rating Agencies, Asset Reconstruction Companies.

♣Product offerings by CIBIL

  • CIBIL offers three products viz. credit score, a credit report for individuals and credit report for companies:

Credit score

  • Credit score refers to a 3 digit numeric value which represents the creditworthiness of an individual. The creditworthiness ranges between 300 to 900 with 900 being the highest and 300 being the least. This score is computed with the help of the credit history of an individual. Banks and most of the financial institutions prefer extending credit to an individual whose score is 750 and more. Individuals with good credit scores are less likely to default on their loan payments.

Credit report

  • Credit report contains the credit information that CIBIL fetches from various financial institutions. This detailed report contains information about an individual’s history of borrowing and repayment routine, including defaults and delays. The important parts of this report are credit Score, individual’s personal information, employment details, contact information and account details.

Credit report for companies

  • Credit report for companies constitutes details about a company’s credit history. The several segments in a company credit report speak about potential lenders, existing credit which the company has, any pending lawsuits and outstanding amount. A good credit report is essential for approval of any loans, whereas a bad report could damage/reduce the chances of the loan being granted to the company.

♣Fair Practices Code for Debt Collection

♣Demand for Lenders Liability Law

  • The Securitisation and Reconstruction of Financial Asset and Enforcement of Security Interest Act was enacted in India in 2002. The Act allowed bank to take possession of assets of defaulting companies without going through the cumbersome legal process. In many countries, banks are mandated by law to respect the right and interest of borrowers, depositors and the other customers.
  • All the banks in India have framed their own set of fair practices codes as per the guidelines and implemented it from November 1, 2003.
  • The ‘Code of Bank’s Commitment to Customers’ was released by Dr. Y.V Reddy, the then Governor, Reserve Bank of India, in an inaugural function held at RBI on 1 July, 2006.

♣Application for Loans and their Processing

  • (a)Loan application form in respect of priority sector and advances of up to Rs. 2 lakhs should be comprehensive. It should include information about the fees/charges, if any, payable for processing. The amount of such fees is refundable in the case of non-acceptance of application. A meaningful comparison with that of other banks can thus be made and the informed decision can be taken by the borrower.
  • (b)Banks and financial institutions shall give acknowledgement for receipt of all loan applications. The time frame, within which loan application up Rs 2 lakhs will be disposed, should also be indicated in acknowledgement of such applications.
  • (c)Banks/financial institutions should scrutinize the loan application within a reasonable period of time. If additional details/documents are required, they should intimate the borrowers immediately.
  • (d)In the case of small borrowers seeking loans up to Rs 2 lakhs, the lenders should convey in writing, the main reason/ reasons which, in the opinion of the bank after due consideration, have led to rejection of the loan applications within the stipulated time.

♠Banking Codes and Standards Board of India (BCSBI)

  • In November 2003, RBI constituted the Committee on Procedures and Performance Audit of Public Services under the Chairmanship of Shri. S.S Tarapore (Former Deputy Governor) to address the issues relating to availability of adequate banking services to the common man. The mandate to the committee included identification of factors that inhibited the attainment of best customer services and suggestion steps to improve the quality of banking services to individual customers.
  • The Banking Codes and Standards Board of India (BCSBI) is an independent banking industry watchdog that protects consumers of banking services in India. The board oversee compliance with the “Code of Bank’s Commitment to Customers”. It is not a compensation mechanism and looks into an individual complaint only to the extent it points to any systemic compliance failure. It is an independent and autonomous body, registered as a separate society under the Societies Registration Act, 1860 on 18 February 2006.The Reserve Bank of India extended financial support to the Board, meeting its expenses for the first five years.

♣Main Aims

  • The plan, evolve, prepare, develop, promote and publish voluntary, comprehensive Code and Standards for banks, to provide fair treatment to their customers.
  • To function as an independent and autonomous watchdog to monitor and ensure that the Codes and Standards are adhered to.
  • To conduct and undertake research of Codes and Standards currently in use around the world.
  • To enter into covenants with banks on observance of codes and standards and to train employees of such banks about the Codes.
  • To help people affected by natural calamities.

♣Monitoring of Implementation of the Code

BCSBI monitors the implementation of the codes through the following methods:

  • Obtains from member banks an Annual Statement of Compliance (ASC)
  • Visits branches to find out the status of ground-level implementation of Codes
  • Studies complaints received from customers and order/awards issued by Banking Ombudsmen/ Appellate Authority to find out whether there is any system-wide deficiency.
  • Organizes an annual conference with Principal Code Compliance officers of the Member banks to discuss implementation issues.

♣Initiatives by BCSBI

BCSBI Also undertakes campaigns and initiatives to spread awareness of the Codes amongst customers and Banks such as:-

  • (i)Provides faculty support to training establishment of Banks
  • (ii)Participates in On- location workshops held by member banks to increase coverage
  • (iii)Associate with customer awareness Programmes conducted by Banking Ombudsmen
  • (iv)Provide Credit counseling services in Mumbai
  • (v)Publishes quarterly newsletter entitled “Customer Matter” containing matters of interest to customers

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