Making way for a ‘Public Credit Registry’ (PCR) in India – RBI constitutes ‘High-Level Task Force’.

As per a press release dated 23rd October 2017, and a Statement on Developmental and Regulatory Policies, issued on 4th October 2017 as part of the fourth Bi-monthly Monetary Policy Statement 2017, RBI has announced the constitution of a High-level Task Force on ‘Public Credit Registry’ for India.

The memorandum states that establishing a public credit registry (PCR) would provide an extensive database of credit information for India that is accessible to all stakeholders, would help in enhancing the efficiency of the credit market, increase financial inclusion, improve ease of doing business and help control delinquencies.

How will it differ from the current credit information entities in India?

A ‘Public Credit Registry’ typically provides data which can be used at a macro level by regulators, policymakers and is generally owned by a central bank. While the other Credit Information systems aim at providing information to commercial lenders and are privately owned. However, taking into account the current mood of the government, ‘Public Credit Registry’ proposed to be formed is likely to be made accessible to all the stakeholders of the banking sector as well as to the public at large.

Four Credit Information Companies in India viz. Credit Information Bureau (India) Limited (CIBIL), Equifax, Experian, and CRIF Highmark, are currently active in India and are regulated by Reserve Bank under Credit Information Companies (Regulation) Act, 2005. All four of these entities focus on data analysis to provide credit scores, reports, and related services. The resultant data provided by these companies are only helpful to the banks for the limited purpose of issuing credit cards and retail loans to their customers as no details of mortgages or charges on immovable properties are available to the banks under the current system.

The Reserve Bank also established a Central Repository of Information on Large Credits (CRILC) to which the Scheduled Commercial Banks report their credit information on a quarterly basis and includes information of their large borrowers with aggregate exposure of 5 Crores and above. However, the CRILC serves only supervisory purposes and its primary focus is to record a Bank’s exposure to its borrowers such as loans to a large borrower, the borrower’s current account balance, bank’s written-off accounts, and detection of stressed borrowers etc. Also, CRILC only records sector wise details of the borrowers and their ratings. The information under CRILC is made available to banks but is not shared with other stakeholders of the banking market space and also the business entities, researchers or public at large, thus making it a repository which serves only a limited supervisory purpose to RBI. Non-integration of information of CRILC with that of the CICs also handicaps RBI to track the effect of policy changes from time to time. CRILC provides only a borrower level data instead of an account level data. Account level data maintained with Reserve Bank is not made available to banks and public at large in real time to enable them to take credit decisions at a micro level.

The current system of credit information, therefore, fails both at the macro and micro level and that too for all the stakeholders. Thus an ‘account level credit information system’ is the need of the hour.

What purpose will it serve?

A ‘Public Credit Registry’ will provide bankers a comprehensive real time ‘Account level data’ to rely on, for making credit decisions at a micro level. The system will help small businesses to get assimilated into the financial system. CRILC only maintains data for large borrowers. However, due to lack of credit information for small businesses, start-ups, entrepreneurs, and micro, small and medium enterprises (MSME), financial aid and inclusion from the Banking sector gets difficult for such businesses. The ‘Public Credit Registry’ would thus promote financial inclusion for small businesses and would further help to create a level playing field.

The proposed system would also empower bankers with a sound credit decision making ability, at a micro level, thereby making them effective in avoiding NPAs. The availability of detailed and comprehensive data with the banks, on individual basis, would also curb fraudulent practices of procuring multiple loans, creating multiple mortgages on a single property, across the country.

I expect the proposed ‘Public Credit Registry’ to have an all-encompassing and all-inclusive approach in terms of information sharing. The system to be developed should not digress from the Government’s aim of financial inclusion and ease of doing business, which would require the Credit Registry to provide effective, and relevant credit information available as an aid not only to the stakeholders in the banking sector but also for the business entities and to the public at large.

The newly introduced concept of ‘Information Utilities’ under the Insolvency & Bankruptcy Code, 2016, and scope of their information integration with the current ‘credit information system’ as well as with the proposed ‘Public Credit Registry’, is however yet to be clarified by RBI.

RBI has also recently issued Master Directions to regulate the growing business of ‘Peer to Peer Lending’ via online and other platforms, thereby bringing it under the ambit of ‘Banking Regulation’ / NBFC category. Interestingly, given the ‘high-risk lending’ nature of this newly regulated ‘credit market space’, one should expect it to hugely rely on the credit information entities of the country, to which the proposed “Public Credit Registry’ would serve as an excellent aid.