CIBIL Defaulters & Clean History, Why not ?

Since the CardBhai Forum was opened for participation, we have received lots of queries on help for settlement of Credit Cards / Personal Loans. Today I would like to enlighten readers on why RBI & Credit Institutions are unlikely to clean your name from the Credit Information Companies – CIBIL Records even after Settlement.

First, you should know that Credit Cards and Personal Loans are Unsecured Debt [Loans without any Security]. RBI gives a Free hand to Banks to charge any interest rate on these instruments. Most Credit Cards have variable interest rate between 24%-48% P.A.

Additionally, there was an element of Doubt on Credit Status of Accounts Settled after Default. Banks are Reporting those accounts as “Written OFF” to CIBIL. There is a valid reason on why Banks do it and it is because, when your credit card bill is generated, the bank will have “X” amount as receivable. However, if you do a settlement for Rs “X” – 5,000, the difference still remains in Receivable and Accounting Practices doesn’t allow that to be adjusted, so it has to get into “Written OFF”. Essentially, the bank keeps in the “Recovery” / NPA section of books of accounts certain days after which the Bank pays from its own pocket. Please bear in mind some good gentleman has deposited money in the bank which is lent to you and if you default on the same from where should the Good Gentleman get back his money ?

Why Banks / RBI unlikely to be Soft on Consumers ?
Apart from the above said reason, if Banks and RBI come to a consensus to clean consumer history after Settlement [at amount less than what you owe], every Credit Card Borrower will start making use of this loop hole. Hence, banks have raised serious objections and RBI is finding a way to this issue.

So How do you proceed ? Only Advise is , pay off the entire amount, close the account and never seek such risky credit until the issues raised by CardBhai are resolved. Or, negotiate hard during settlement and include the clause that “STATUS” will NOT be reported as any of the following – Suit filed, Willful default, Suit filed (Willful Default), Written off, Suit filed and written off, Willful default and written off, and Suit filed (willful default) and written off.