The Reserve Bank of India (RBI) on Wednesday said it would set up a public credit registry—an information repository that collates all loan information of individuals and corporate borrowers.
A credit repository will help banks distinguish between a bad and a good borrower and accordingly offer attractive interest rates to good borrowers and higher interest rates to bad borrowers.
The move is based on the recommendations of a committee it set up last year, headed by Y.M. Deosthalee.
The PCR will be the single point of mandatory reporting for all material events for each loan, notwithstanding any threshold in the loan amount or type of borrower. The PCR will serve as a registry of all credit contracts, duly verified by reporting institutions, for all lending in India and any lending by an Indian institution to a company incorporated in India.
Credit information is spread over multiple systems in bits and pieces, making it difficult to get a comprehensive view of the financial liabilities of a person or entity. A PCR aims to remove information asymmetry to foster the level of access to credit and to strengthen the credit culture in the economy.
Also, a comprehensive credit information repository covering all types of credit facilities (funded and non-funded) extended by all credit institutions – commercial banks, cooperative banks, NBFCs, MFIs – and also covering borrowings from other sources, including external commercial borrowings and borrowing from market, is essential to ascertain the total indebtedness of a legal or natural person.
A PCR can potentially help banks in credit assessment and pricing of credit as well as in making risk-based, dynamic and counter-cyclical provisioning.
The PCR can also help the RBI in understanding if transmission of monetary policy is working, and if not, where are the bottlenecks.
Further, it can help supervisors, regulators, and banks in early intervention and effective restructuring of stressed bank credits.
A PCR will also help banks and regulators as credit information is a ‘public good’ and its utility is to the credit market at large and to society in general.
Recommendations made by the task force:
The PCR should be structured as an independent unit within the RBI so that it may be hived off to a separate non-profit at an appropriate time. It should eventually achieve an autonomy and agility to move with the evolving environment and cater to the changing demands.
The registry should facilitate linkage to related ancillary credit information available outside the banking system, such as corporate balance sheet information and GSTN, depending on the legal provisions.
The registry should not include elements of judgment such as credit scoring services and had also called for strict privacy guidelines.
Currently, there are multiple granular credit information repositories in India, each with distinct objective and coverage. Within the RBI, CRILC is a borrower-level supervisory dataset with a threshold in the aggregate exposure of Rs 5 crore. Also, there are four privately-owned credit information companies (CICs) in India.
The RBI has mandated all its regulated entity to submit credit information individually to all four CICs. CICs offer, based on this unique access to the credit data, value-added services like credit scoring and analytics to the member credit institutions and to the borrowers.