Credit Information Bureau (India) Limited (Cibil) was set up to distinguish good borrowers from the bad ones. Till now there was no incentive to be a good one. Banks did not reward a borrower for making timely repayments. Special Correspondent Tejas Bhope spoke to Cibil chairman S. Santhanakrishnan to find out how far the bureau has fulfilled its mandate. Excerpts.
Q. How is Cibil relevant to the retail borrower?
A. World experience indicates that when a credit bureau comes into being, the rate of interest in the system drops. As consumers become proactively credit disciplined, they gain bargaining power, and the potential bad borrowers get automatically isolated. This will happen here too. So far all customers have been paying the same rate of interest because the distinction between bad and good borrowers was not available. Today banks can draw a report and reward the good ones. SBI, for one, has come out with a Credit Khazana scheme offering a concession of 0.25 percent to its housing loan customers who have serviced the loan regularly for at least a year.
Q. Cibil prepares an individual’s credit information report on the basis of the feedback from banks and institutions. Often banks give a negative report on an individual because of their clerical mistakes. Why isn’t the individual given an opportunity to explain his position?
A. We cannot consult the consumers for every report. There are millions of them and it is a practical difficulty. Cibil is only a neutral service provider. We don’t know which bank has sent what data for any given consumer. Further, the report does not decree whether the consumer is good or bad. It only mentions information like the sanction limit, what are his outstandings over a period of time on a monthly basis and how he is paying them.
Q. But an individual is not allowed to see his credit information report so he may never know where he went wrong or point out some error in the report.
A. If a bank rejects a loan application because of the customer’s credit report, the individual can get a copy of the report from the bank and see if at all anything is wrong.
Q. If an individual is denied credit because of an erroneous record, what respite is he given?
A. You have the right to challenge the bank rejecting your loan application. After the bank takes up the challenge with us, we can find out which bank has made the error and tell them to reconfirm the error or correct it on receipt of proof. Banks also have to audit the reports before
they submit it to us. The new rules, to be introduced soon, will require banks to rectify the error within a week and Cibil to update the rectified reports within two weeks.
Q.What can a person do to improve his negative credit rating?
A. You just have to be financially disciplined. Earlier, when the credit information report was not available, if someone defaulted for even a quarter it would ruin his credit standing for ever. Today he can rebuild his credit history. If he pays back regularly for six months, over time his account gets rectified. We don’t spoil or make anybody’s credit history, we only offer redemption. But there cannot be any redemption for a wilful default. India only has wilful defaulters today.
Q. Some lending institutions have told their sales staff to overlook Cibil’s reports because they are not correct or updated.
A. In fact, the situation is the other way round. Each month we are selling over a million reports.
Q. Have the bad loans dropped after Cibil started functioning?
A. We have to look at this in perspective. Cibil’s initial challenge was to overcome the banks’ possessiveness about consumer details. So our primary role has been to aggressively sell the concept of information sharing. Now many banks have made it mandatory to draw a Cibil report before taking a credit decision. To that extent we’ve found relevance and applicability. Whether the NPAs or bad loans have reduced is RBI’s business. We don’t directly come into that picture.
Q.When and how was the need to form Cibil felt?
A. Till 2000, banks and financial institutions focused on wholesale (corporate) lending and treasury profits. With globalisation, corporates started directly accessing the markets for cheaper loans so liquidity within the banking system grew. To channelise this excess, banks started exploring the retail credit area. On the other hand, per capita income was rising and consumers wanted to borrow like never before. However, banks were reluctant to share information about their customers for fear of losing them. Ultimately the customer had to wait endlessly to get his loan sanctioned. At that point in time, banks sorely felt the need for a common, reliable registry where they could pool the credit history of consumers. RBI’s Siddhiqui Committee took the lead to form Cibil to address this need.
Q. Many lending banks are not members of Cibil. Is it because they do not agree with its functioning?
A. At present we have 127 members accounting for 99% of the financial system. Those who are yet to become members are the ones restricted by the RBI but they will be covered in the second phase since the Credit Information Companies Act mandates all lenders to be a member of at least one credit information company.
Q.What changes would you suggest to make Cibil more meaningful?
A. We are working on giving individual borrowers direct access to their credit reports for a fee. Parliament has already passed the Bill. We are also looking to launch “scoring”—a quantitative nutshell of a consumer’s credit history. With a high score you can avail of cheaper credit.