Generally speaking, from the universe of my acquaintances in my thirty-some years on the planet, the set from school would constitute the oldest and most valued relationships. To boot, a majority of this group would rate higher than average in terms of cerebral acumen as well as worldly success. Hence, when no fewer than three such friends seek me out in the space of a few weeks with queries on financial products, all centred on 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 telling in the extreme. My working 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 half accurate — while only Credit Information Bureau India Ltd or CIBIL is completely operational, Experian is slated to be the second, 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 also appropriate terms for borrowers. Bureau data is formatted into a Credit Information Report (CIR), which can be accessed by member institutions and concerned consumer or commercial entities. This CIR is being increasingly leveraged to assess creditworthiness in India as we speak — a decades-long practice in the developed world.
Therein, of course, lies the rub. Widespread usage of the CIR is a relatively recent phenomenon and customer awareness about it has been pitifully inadequate. Combined, this has severely limited consumer motivation to keep bureau data accurate and updated. As such, a sizeable section of borrowers end up not-so-pleasantly surprised by their CIR's contents — and that at the very cusp of a loan (hence calls to folks like me). Nor are the bureaus much to blame — not only are their credentials impeccable (CIBIL, for instance, was cofounded by SBI and HDFC, along with Dun & Bradstreet and TransUnion, both experts in their domains), but inaccuracy of information strikes at their very raison d'être.
Similar vested interest in veracity may have been presumed for banks and FIs. Unfortunately, in CIBIL's nascent days, a chunk of members were curiously over-protective of their data and loath to share vital information with others. This futile stance changed significantly only with the 2008 Crisis, when the industry woke up to the dangers of one-upmanship. Historically, there may have been infrastructure issues in data capture or storage too, especially with PSU players. All this — exacerbated by customer tardiness in closing seemingly trivial issues and occasional wilful default — culminated in countless unfairly sullied CIRs.
As things stand, the CIR is now part of life (common misconception: only delinquent accounts get reported to bureaus — not so; they carry all). In fact, consider it only a function of time when CIR usage shall transcend lending decisions to encompass utilities and other facets of one's financial identity. Note too that its capture, portability, and permanence will be in a different league post-Aadhaar implementation. Neither should it be thought impossible for the CIR to become an input for employment decisions (in BFSI, company directorships etc), nor, at some point in the future, indirectly impinge on social contracts, or even public office.
Meanwhile, for those with current or future borrowing needs — that is, virtually everyone in India's emerging consumerist paradigm — and at all concerned with credit availability and terms (obviously, pricing; equally credit delayed can be credit too late — ask those forgoing cash discounts when purchasing a new house), an impeccable credit history is highly desirable. Even as you get disciplined in future payments, cast an eye on your CIBIL report now and going forward (rectify errors, if any, via your bank or FI that has reported them). Procrastination is perilous.
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 telling in the extreme. My working 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 half accurate — while only Credit Information Bureau India Ltd or CIBIL is completely operational, Experian is slated to be the second, 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 also appropriate terms for borrowers. Bureau data is formatted into a Credit Information Report (CIR), which can be accessed by member institutions and concerned consumer or commercial entities. This CIR is being increasingly leveraged to assess creditworthiness in India as we speak — a decades-long practice in the developed world.
Therein, of course, lies the rub. Widespread usage of the CIR is a relatively recent phenomenon and customer awareness about it has been pitifully inadequate. Combined, this has severely limited consumer motivation to keep bureau data accurate and updated. As such, a sizeable section of borrowers end up not-so-pleasantly surprised by their CIR's contents — and that at the very cusp of a loan (hence calls to folks like me). Nor are the bureaus much to blame — not only are their credentials impeccable (CIBIL, for instance, was cofounded by SBI and HDFC, along with Dun & Bradstreet and TransUnion, both experts in their domains), but inaccuracy of information strikes at their very raison d'être.
Similar vested interest in veracity may have been presumed for banks and FIs. Unfortunately, in CIBIL's nascent days, a chunk of members were curiously over-protective of their data and loath to share vital information with others. This futile stance changed significantly only with the 2008 Crisis, when the industry woke up to the dangers of one-upmanship. Historically, there may have been infrastructure issues in data capture or storage too, especially with PSU players. All this — exacerbated by customer tardiness in closing seemingly trivial issues and occasional wilful default — culminated in countless unfairly sullied CIRs.
As things stand, the CIR is now part of life (common misconception: only delinquent accounts get reported to bureaus — not so; they carry all). In fact, consider it only a function of time when CIR usage shall transcend lending decisions to encompass utilities and other facets of one's financial identity. Note too that its capture, portability, and permanence will be in a different league post-Aadhaar implementation. Neither should it be thought impossible for the CIR to become an input for employment decisions (in BFSI, company directorships etc), nor, at some point in the future, indirectly impinge on social contracts, or even public office.
Meanwhile, for those with current or future borrowing needs — that is, virtually everyone in India's emerging consumerist paradigm — and at all concerned with credit availability and terms (obviously, pricing; equally credit delayed can be credit too late — ask those forgoing cash discounts when purchasing a new house), an impeccable credit history is highly desirable. Even as you get disciplined in future payments, cast an eye on your CIBIL report now and going forward (rectify errors, if any, via your bank or FI that has reported them). Procrastination is perilous.
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2 comments:
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?
-A
http://www.thehindubusinessline.com/iw/2011/01/23/stories/2011012350571100.htm
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