Setting up a Public Credit Registry in India – Latest developments from RBI to improve ease of doing business in India

I have in my earlier article on Ease of doing business in India, published by Tax Guru on 06.11.2017 had informed that RBI had agreed to take necessary steps to set up a Public Credit Registry in India and in tune with that, RBI recently got a report on Public Credit Registry in India from a High-Level Task Force set up by RBI itself. Obviously, the members of the task force emerged from the best professionals of public and private sector institutions. The task force used the talents of international institutions also to finalize its report

Now, it is our turn to learn the recommendations of the Task Force. Setting up of a Public Credit Registry would improve Indian ranking on a world level for ease of doing business since we got “0” for non-availability of the same previously.

My write up generally follows the pattern of the report to have continuity.

The whole exercise started with the lack of reliable credit information on any borrower which can be kept as the base for financing. Many of the bankers like myself had the draw back of not knowing even the housing loan being financed by multiple credit institutions. The situation was pretty bad. The liability was always kept on the sanctioning officials to avoid institutional responsibility and easy operations. All the nationalized banks took the easy option of passing the buck to the lowest cadre of managers to avoid risks till the situation reached unbelievable Non-performing levels of borrowers.

Thus, RBI had no option than creating a high-level team on “Public Credit Registry” to help the nation.

The terms of reference were as under:

  • To review the current availability of information on credit in India.
  • To assess the gaps in India that could be filled by a comprehensive PCR.
  • To study the best international practices on PCR.
  • To determine the scope / target of the comprehensive PCR: type of information to be covered along with cut-off size of credit, if any.
  • To decide the structure of the new information system or whether the existing systems can be strengthened / integrated to get a comprehensive PCR.
  • To suggest a roadmap, including the priority areas, for developing a transparent, comprehensive and near-real-time PCR for India.

Or to explain in a simple sentence, to set up a real time Public Credit Registry(PCR) on the basis of the best international practices to help the credit institutions or other stake holders.

You may ask me what is so special about PCR and where do we stand as a nation with our systems which are plethora in number and consume substantial time in real time working of our institutions.

There are two systems of collection, storage or usage of credit data in almost all countries in the world, namely, Public Credit Registry, generally run by the central bank of the country and the other, namely, Public Credit Bureaus, (PCBs) mostly run by private companies. While supply of credit information is compulsory or mandatory for PCR, PCBs, run on profit basis, have the information on voluntary basis.

World bank in its survey conducted in 2012 told us that out of 195 countries that were studied, 87 had PCRs and those under French system of legal practices, popularly known as Civil System, had PCRs while those with British ruled states, following Common Law practices had PCBs. Yes, meekly we followed British system since 1947 though it did not help us to know even the crop loan sanctioned by any bank branch to any borrower  for planning our credit practices at RBI or other supervisory stake holders. Do you know that Germany started PCR in 1934? Wah!

How did the task force undertake its work?

The task force met 8 times during the period October 2017 to April 2018. It looked at the present system of collection of credit system among the public institutions as well as the private institutions.

RBI has been collecting the following information.

 Within the RBI, the CRILC is in operation since 2014-15. CRILC is a borrower level dataset targeted towards fulfilling supervisory requirement by focusing on systemically important credit exposures. Banks report to CRILC credit information on all their borrowers having aggregate fund based and non-fund-based exposure of INR 50 million and above.

 Credit information to CRILC is submitted by all SCBs (excluding RRBs). Similar CRILC system for NBFCs with reporting of credit information by the top 70 NBFCs also exists. RBI also has an elaborate statistical return system covering various aspects of credit and deposit.

 BSR-1 is a statistical dataset, maintained within RBI, with the objective of ascertaining the sectoral and spatial distribution aspects of credit and is in existence since 1972. BSR-1 does not have any borrower identification and all loans, without any threshold in the amount outstanding, get reported to BSR-1 by all SCBs including RRBs. Unfortunately, BSR, popularly known among the bankers as Basic Statistical Return was considered as one of the most important return to be submitted on regular basis. Now, I am surprised to hear that it did not serve any purpose for RBI from credit collection angle.

Then, you may question me about the various other Credit Information Companies operating in private sector. You may also recollect that your credit score for getting any loan from any institution starts with your credit score.

 The CICs have the mandate for collection and sharing of credit information from banks, non-banks and other credit providing agencies under the Credit Information Companies (Regulation) Act (CICRA), 2005.

According to this Act, only certain entities are allowed to be members of the CICs. They are Credit Institutions under Section 2(f) and Credit information companies under section 2(e) of CICRA, 2005.

History of Credit Bureau operations in India

The TransUnion CIBIL Limited (formerly Credit Information Bureau (India) Ltd. (CIBIL)) was incorporated in 2000 and started operations in April, 2004.  If you had been to any financial institution, the first information enquired about your credit health is CIBIL score.

Three other CICs were also set up following the enactment of CICRA, 2005. Equifax Credit Information Services Private Limited and Experian Credit Information Company of India Private Limited were established in 2010.

 CRIF High Mark (formerly High Mark Credit Information Services) had its existence from 2011. All the four CICs are now fully operational in India. You have been getting several emails about your credit score from various agencies quoting these organizations of excellence which have over all done a noble job in credit management.

RBI Task force also established other 5 sub-groups catered to different class of stakeholders i.e., Commercial Banks, Non-Banks and Cooperative Banks, Regulators and Information Technology. Each of this group had its own schedule and sought the views of these groups about their expectations on PCR.

The report has been presented with the following details- actually taken from the main report:

“Chapters

1. Introduction

2. Credit Information Infrastructure in India – Current Status

3. Credit Information Infrastructure – International Practices

4. Public Credit Registry in India – Expectations of Stakeholders

5. Public Credit Registry – Information Architecture

6. Recommendations

 Annex

I. Memorandum

II.  Reports of the Subgroups

 Report of the Banking Subgroup

 Report of the Non-Bank Subgroup

 Report of the Cooperative Bank Subgroup

 Regulators’ Expectations

 Report of the IT Subgroup” …

Since I have given the whole report available from RBI website for reference, I shall not deal with individual chapters. All concerned professionals like bankers, risk managers, top managements of banks, NBFC, Cooperative institutions or any one who need credit information and the issues related thereon may read the report for detailed understanding.

Brief understanding of stakeholders’ expectations, Regulators’ expectations as well as the main recommendations of the task force are being dealt with as under. The three subgroups related to commercial banks, non-banks and co-operative banks were also set up to view the challenges in decision-making during various phases of credit life cycle, expectations from PCR related to information to be captured and how to consolidate/simplify multiple reporting and how the new system would create the least disturbance to the existing stake holders.

The sub-groups had extensive discussion among various users and gave their recommendations separately.

Let us look at the terms of reference on the basis of which they had detailed deliberations pertaining to their fields of specialization and affected stake holders:

“Terms of reference of the Subgroups (Banks, Non- Banks & Co-operative Banks) were as follows:

(i) Challenges in efficient decision making during various phases of the credit life cycle due to lack of credit information;

(ii) Expectations from PCR: outline of information desired to be captured within PCR;

(iii) Consolidation/ simplification of multiple reporting currently being done; and

(iv) Suggestions for simplified on-boarding / minimum disruption to stakeholders.”

(For obvious reasons, I am constrained to reproduce the above from original report which are simple and easy to understand.)

After due deliberations among their relevant members, the three groups gave their recommendations which are given as under, in simpler terms:

  • Banking sub groupidentified certain challenges like lack of comprehensive data including all debt snapshot, lack of coverage of all borrowing activities, and unreliable nature of data provided by borrowers which could not be verified easily. Their major recommendations centered around inclusion of all debt instruments of the borrower while compiling the data, development of secured, confidential nature of reference for user as a feature, simplification of current reporting by avoidance of multiple times by one reporting and proper validation and harmonization by the central credit registry. In simple terms, the banking group wanted a safe, simple and secured system which would save money but would adequately serve information reporting and usage.
  • (It is sad to find that as a nation, bankers have been wasting their time on useless reporting which did not serve any purpose as the recent instances of fraud and physical running away of borrowers indicated. I would appreciate inclusion of limit as Re 50 million as the base and also compulsory knowledge of passport and details on movement of borrowers when they are on defaulters list. While a poor man’s tractor could be lifted mercilessly, nothing happens to a rich man’s defaults since the reporting at various places have complicated the procedure to get them, whenever needed.) Yes, this is my view as an experienced banker of 3 decades.

The banking group also suggested a proforma with details for 106 serial numbers with info like unique identifier, name, category of entry, legal constitution, country of origin, whether the borrower is listed, details of various credit availed, whether in the NPA list or not, details of charges registered, details of directors etc.  However, the whole exercise has incorporated all the required fields based on local requirements as well as from international practices. As a single point of reference, it would meet all the requirements of lending institutions. I however expect further refinement in near future. Even, you may send your observations on this useful proforma for RBI considerations. I applaud the efforts of the specialists who prepared this list.

 Since all the columns may not applicable to everyone, only relevant data would be included for individual borrowers.

 The sub group on information architecture has given a detailed technical report which has been duly incorporated as Chapter 5, I request fully qualified professionals to read the report and analyze its future utility. I am not competent to pass any judgement and hence has omitted my observations.

What about the feedback from non-banking group?

The most authentic and realistic report given by the non-banking group dealing with info like client on-boarding, due diligence, transactions based, sanction/pre-disbursement and on- going monitoring has quoted 38 sources from which they need to refer for compilation of information. It indicates the wastage of time and efforts to gain the essential information to arrive at credit decisions.

Their recommendations are apt and are given below:

  • Public Credit Registry should source information from various public platforms to enable the users with even red flag info like regulatory action, enforcement proceeding, defaults, etc.
  • Common KYC {including Non-Individual (non-corporate)} Uniform KYC requirements for all types of customers especially non-individuals, non-corporate customers, in a structured format  across regulators and products. This will enable PCR to integrate its database with other sources of information.
  • Strengthening of scoring mechanism: a scoring mechanism that may be developed based on the information available with PCR such as payment history, payment default of statutory dues, litigation convictions, enforcement actions, etc.  and provide early warning signals to lending institutions.
  • Credit Information Bureau:  PCR to have an updated and near real-time upgradation with details of collaterals, guarantees and other relevant information.
  • CERSAI (mortgage): The current CERSAI Platform to be enhanced to include updates on security, real time reporting of charges, common identifier for mortgage assets, details of NOCs from existing lenders, takeover cases, and pari-passu charges if any.
  • PCR to serve as Common Reporting Platform data warehouse with reliability and safety of data.
  • Other Recommendations included a comprehensive legal framework for PCR to enable lending institutions to refer available borrower real time data, duly authenticated by them, to request RBI to share data base available on CRILC, willful defaulter’s details, details of frauds across NBFCs, HFCs and ARCs which are generally not available now. Or simply put in layman’s terms, avoid ivory tower approach and make information available to needy institutions, of course, with due security safeguards. It is expected that service charges would be demanded by RBI on a lump sum basis, quarterly, half yearly or annual basis to be duly settled between RBI and other lending institutions or other stake holders.

Let us just glance through some of the wish list/recommendations of some regulators(directly taken from the main report since the language is simple and easy to understand)

“RBI

  • As a Regulator, RBI requires aggregated data only. As PCR is presumed to be individual / micro level data, it is supposed to be more useful for supervisory purpose.
  • A thorough assessment of incremental/ additional benefits of the proposed PCR vis-à-vis existing credit bureaus is necessary. A cost-benefit analysis should be attempted. The burden of multiple reporting needs to be addressed.

IRDA

IRDA has provided the following as its expectations from PCR:

(i) Detailed information of issuances in the primary market such as term sheets, information memorandum, rating rationale (with regular updating), details of trustees, security creation dates, etc. should be available.

(ii) Information about classification by any of the lenders/bond subscribers into default/substandard category.

(iii) Any other bond/debenture/other forms of borrowing of the issuer whether being classified as default/sub-standard, etc. should be made available.

(iv) The details of downgrades of credit ratings of bonds/debentures/commercial papers by SEBI approved rating agencies.

(v) Details of delay/default of principal/interest on bonds and debentures of the issuer be made available.

Readers are requested to refer to recommendations of other sub-groups for proper understanding.”

My observations on above

It is time to understand that release of loans has become very complicated since one unscrupulous person may get thousands of crop loans released from unknown records and corrupt bankers or other primary lenders. Recent demonetization of notes indicated unvisited territory for honest bankers to learn. I can’t imagine as an honest banker/auditor(retired) that lakhs of accounts could be opened in these days of KYC requirements and ill-gotten money could be pummeled in. Let us hope PCR as a store house of genuine information would not let unscrupulous in.

Main recommendations of HTF

HTF gave its recommendations based on the extensive discussions with all stakeholders as well as the best practices undertaken by many countries long ago. Some of them which merit reproduction, are enumerated below:

  • PCR to be set up by RBI, to start with. RBI with PCR may mandate reporting of any loan released irrespective of loan size to all lending institutions.
  • PCR therefore would serve as the registry of all credit contracts while the reporting institutions take the responsibility for the information and its authenticity.
  • Every one expects the legal formalities would be undertaken to safeguard the interests of all stakeholders.
  • RBI may later on relegate this function to any subsidiary to be duly authorized by the government with suitable legal powers.
  • The authority in charge of the PCR may be endowed with appropriate enforcement power to take action against any one violating the rules and regulations.
  • The borrowers may access their own credit history report from PCR. Access to PCR data to all stakeholders must be on a need-to-know basis only and adhere to the strictest measures of privacy and protection to sensitive information.
  • The PCR should capture both positive and negative information of the loans which would as a single point of reference, help all lending institutions to avoid cost delay as well as for due diligence purposes.
  • With the objective of making credit available to those without a recorded credit history and to enable flow-based lending, the PCR would collect / facilitate linkage to ancillary credit information, such as utility / statutory / insurance payments data, GSTN data etc. subject to the extant legal provisions. Interlinking with other data base would give a holistic information to any lending institution to arrive at suitable decisions.
  • To capture a holistic picture of the borrower’s total indebtedness, the PCR should also include data such as ECBs, market borrowings, and all contingent liabilities. The PCR should add linkage to available caution / advisory / defaulters’ lists such as RFA, willful defaulters’ list, CFR, ECGC defaulters’ list etc.
  • To make the task complete, RBI through PCR to have linkages with other information systems.

Conclusion

Compelled by the initiative created by the booming economic conditions, experiences from failed credit decisions and availability of abundant credit/risk management/IT Technical power of world class and on the basis of simple willingness of every one involved in any credit dispensation to refer to any reliable source data with minimum cost to produce world class results, the High Level Task Force on Public Credit Registry set up by RBI has submitted its highly technical report with the best coverage on credit/IT/risk management which has been analyzed by the undersigned in the above article. My strong expectation as an experienced banker who has been a witness to the evolution of banking in India since 1973, is that we are reaching world class standards due to the willingness of all stakeholders to reach the highest level of excellence. Let the recent banking misadventures be washed away by our creative initiatives to face a better future.

I request the readers to read the report thoroughly and suggest any suggestions/improvements to RBI for necessary action. Yes, it involves you as a lender/borrower/owner of all lending institutions living at any part of India. Please do contribute as a serious professional your own share to improve the system.

Reference

1. Main report titled “Report of the High-Level Task Force on Public Credit Registry for India” dated June 6, 2018 from RBI web site as under:

2.” Ease of doing business 2018 ranking by World Bank for the year 2016/2017-A lively discussion” written by the undersigned on 06/11/2017 and published by Tax Guru: This can be viewed from the following”.

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