Tuesday, November 23

CIRcle of Life

Generally speaking, from the universe of my acquaintances in the thirty-some years on the planet, the set from School would be in summary the oldest and most valued of relationships. To boot, a majority of this group would rate higher than average in terms of phrenic acumen as well as worldly success. Hence, when no less than three such friends seek me out in the space of a few weeks with queries on financial products, all centred around the theme of credit history, something does seem amiss in the State of Denmark!

Proceeding under the assumption that a general outbreak of penury has not gripped the Class of 1991 (and the financial transactions intended certainly pointed in the opposite direction!) the spate of enquiries was highly suggestive. My direct hypothesis was our collective lack of appreciation for Credit Bureaus and their rapidly expanding sway in India's financial system. (Incidentally, using the plural is accurate, though only Credit Information Bureau India Ltd or CIBIL is completely operational; Experian shall be the second Bureau and more are in the pipeline). A quick primer therefore seems in order.

Simply put, a Credit Information Company or Credit Bureau is a repository of credit histories of individuals and companies. It is premised on the principle of pooled information - all member banks and FIs share credit line and payment data with it - intended to facilitate better credit decisions for lenders as much as appropriate terms for borrowers. Bureau data is formatted into a Credit Information Report or CIR which can be accessed by member institutions and the concerned consumer or commercial entity. It is this CIR that is increasingly being leveraged to assess creditworthiness in India as we speak - a decades long practice in the developed world.

Therein of course lies the rub. The widespread usage of CIR is a relatively recent development and customer awareness has been potentially inadequate. Combined, this has meant low motivation to keep Bureau data entirely accurate and updated, leading to a good chunk of borrowers being not-so-pleasantly surprised by their CIR's contents (and hence those calls to folks like me). Bureaus are mostly not to blame though - apart from their impeccable credentials (CIBIL for instance was cofounded by SBI and HDFC with SME's D&B and TransUnion), inaccuracy of information strikes at their very raison d'etre. Similar vested interest may have been presumed for Banks/ FIs but unfortunately in CIBIL's nascent days a good chunk of members were curiously over-protective of their databases, loath to share vital information with the others. (That this futile stance changed is in significant measure due to the 2008 Crisis, when the industry woke up to dangers of one-upmanship!) There may have been infrastructure issues in data capture and storage in the past too, especially with PSU players. And last but not least, consumers may have been less than responsible with closure of seemingly trivial issues, including occcasional wilful default, all leading up to a messed up CIR.

As things stand, the CIR is now a part of life (a common misconception is that only delinquent accounts get reported to Bureaus - not so, they carry all records). In fact we should consider it a near certainty that CIR usage shall transcend beyond lending decisions to Utilities and other necessities of life. It is also obvious that information capture and permanence will be in a different league post Aadhar implementation. It is indeed not impossible to envision the CIR become an input for employment decisions (say, in BFSI or for company directorship etc), perhaps even indirectly impinge on social contracts (public office for instance) going forward.

Meanwhile, for those with current or future borrowing needs (almost everyone in modern India's consumerist paradigm) and at all concerned with credit availability and terms (pricing is obvious; equally credit delayed may be credit too late - ask folks foregoing cash discounts when buying that new house), an impeccable credit history is highly desired. Also, even as you get disciplined in future payments, check your current CIR from CIBIL at www.cibil.com/accesscredit.htm as first step (errors if any will have to be corrected via your Bank/ FI that has reported them so write to it for rectification). The time to act is now!


Anonymous said...

It will get a lot more fun out there when you'll have more than 1 bureau and how they handle that Capitalism cosy corner!

You should focus your attention on another part too -- for QE2 or not, the Recovery will come about one day -- though faster in India than here in the West -- but I still would want to check if the bureaus could have raised a greater stink to have nipped this whole thing in the bud. Isn't that a thought?


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