India’s retail bankers are in a comfortable spot today. Loan growth in this segment has been strong but delinquencies have remained in check. Ask them why and most will attribute the comfort in retail lending to the country’s credit bureaus.
Risk in retail lending, particularly unsecured lending, has been substantially mitigated by credit bureaus, Arvind Kapil, group head of unsecured loans at HDFC Bank – the country’s largest private lender by assets – told BloombergQuint in a recent interview. “Bureaus are not information providers. They have constructed a social construct of pressure and education that helps you pay on time,” Kapil explained.
Credit bureaus, or credit information companies (CIC) as they are called in regulatory parlance, are a relatively recent addition to the Indian lending landscape. TransUnion CIBIL, the country’s first largest CIC, was incorporated only in the year 2000 and commenced credit bureau services in 2004. Since then three others – Equifax, Experian and CRIF High Mark – have started operating.
Today, these bureaus are facing a collective challenge to their existence. The challenge comes from no less than the regulator itself and its plan to launch a public credit registry (PCR).
On June 6, the RBI said that it has decided to set up a PCR in a phased manner following recommendations of a committee headed by Y.M. Deosthalee. The decision has left the country’s credit bureaus nervous, forcing the top management at some of these firms to reach out to the RBI for clarity.
What will be the role of the RBI-driven credit registry? Will it overlap with the business of the credit bureaus? And, most importantly, will it reduce the use credit bureaus and scores?
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Editorial Comment*: What the RBI has in mind is to create one massive database covering information on the total indebtedness of a legal or natural person. It means the creation of a government monopoly to the detriment of the private sector.
The concentration of such data may be of value in the absence of private sector credit bureaus, but in the case of India, it will be another large public sector database to be hacked. Given the large size of the business and consumer population, the sheer volume of a data base maintained by the RBI, makes it a tempting target for cyber criminals or just plain nuisance hackers. A government operated credit register does not necessarily provide efficiency and state of the art systems. On top of which it squanders taxpayer’s money by funding a duplicate effort.
Instead the RBI should consider the current setup as a network of independent credit bureaus, which can feed the RBI with data, in real time, for its oversight purposes.
*The views expressed in this commentary are those of the editor and do not necessarily reflect the opinions of BIIA’s members.