One of the more fulfilling assignments in my career was in a role managing consumer debt in the Indian banking and financial services industry. I had started in mid-2007, when signs of stress were unmistakable in our portfolio, and enough to discern similar trends across the sector. They were the direct consequence of indiscriminate lending and immature borrowing practices that had been rampant earlier in the decade. Naturally, the resultant losses led to tighter credit policies and general housecleaning, with varying degrees of success, across all players.
Though mandarins at FinMin and RBI downplayed it, but this improved hygiene had a major hand in ensuring that our country emerged from GFC 2008 relatively unscathed. Thus, while capital flows and liquidity hit a reset globally, one of its key facets, namely burgeoning consumer debt and subsequent borrower impact, largely gave India a miss. I argued too, with a ringside view, that rise of credit bureaus was one of our most far-reaching gains from this period ("CIRcle of Life"). They emerged from the shadows in those days beset by uncertainty and churn, and have remained a vital cog in the industry’s wheel ever since.
GFC is now but a distant memory (save for some of us). Credit offtake has reached or exceeded pre-crisis levels in most economies globally. Consumer indebtedness is not yet a concern, including in India. Everything points to business-as-usual. Hence, it is vital that we address any gaps in credit management before lessons of 2008 are entirely forgotten.
The most visible of these is our weak credit reporting framework. Despite having moved away from Indian consumer finance (in a work sense) I still hear enough stories around inaccurate reporting of defaults, especially around old write-offs that have simply been mis-recorded. A chunk of these are false positives from identity mix-ups by CIBIL and or the lender in question. Equally, there are instances of bad data like closed credit card annual fees, collection agency fraud, disputed charge write-off etc.
No less worrisome is the imbalance of power that puts the onus for data clean-up entirely on the consumer. Processes to do so in a few banks are reasonably unfriendly too. Most important, though, is the opportunity cost. Almost all cases I know came to light when the consumer has applied for fresh credit, often for big life events like home purchase. In at least a couple of cases (till my advice to the contrary) folks were even willing to honour an incorrect demand in order to get a “clean CIBIL” (motivated by the math of charge being in hundreds versus credit need that is much larger). This is hardly kosher.
It goes without saying that the issue needs a fix at source. Banks must be taken to task for irresponsible reporting, with a threat of monetary compensation to disincentivize laxity. In most mature markets, this is secured by legislation (FCRA. CCA, Privacy Act etc). If needed, the government must consider similar consumer protection laws in India as well.
The other issue with credit reporting is coverage. There is a strong argument to expand consumer behaviour monitoring, in the Indian context, to telecom payments. The rise of wallets and payment solutions are blurring the lines here in any case. Yet, this could well be an apres moi le deluge moment. Dimensionality of credit data would multiply (volume, churn, nature of disputes etc) were this to happen. It makes it incumbent to establish the ground rules now, with a much better defined financial services scope.
Crises, as students of economics know, are cyclical by their very nature. Hence, we must act now, so as to be better prepared when the next unforeseen strikes. Lest history judge us differently.
Though mandarins at FinMin and RBI downplayed it, but this improved hygiene had a major hand in ensuring that our country emerged from GFC 2008 relatively unscathed. Thus, while capital flows and liquidity hit a reset globally, one of its key facets, namely burgeoning consumer debt and subsequent borrower impact, largely gave India a miss. I argued too, with a ringside view, that rise of credit bureaus was one of our most far-reaching gains from this period ("CIRcle of Life"). They emerged from the shadows in those days beset by uncertainty and churn, and have remained a vital cog in the industry’s wheel ever since.
GFC is now but a distant memory (save for some of us). Credit offtake has reached or exceeded pre-crisis levels in most economies globally. Consumer indebtedness is not yet a concern, including in India. Everything points to business-as-usual. Hence, it is vital that we address any gaps in credit management before lessons of 2008 are entirely forgotten.
The most visible of these is our weak credit reporting framework. Despite having moved away from Indian consumer finance (in a work sense) I still hear enough stories around inaccurate reporting of defaults, especially around old write-offs that have simply been mis-recorded. A chunk of these are false positives from identity mix-ups by CIBIL and or the lender in question. Equally, there are instances of bad data like closed credit card annual fees, collection agency fraud, disputed charge write-off etc.
No less worrisome is the imbalance of power that puts the onus for data clean-up entirely on the consumer. Processes to do so in a few banks are reasonably unfriendly too. Most important, though, is the opportunity cost. Almost all cases I know came to light when the consumer has applied for fresh credit, often for big life events like home purchase. In at least a couple of cases (till my advice to the contrary) folks were even willing to honour an incorrect demand in order to get a “clean CIBIL” (motivated by the math of charge being in hundreds versus credit need that is much larger). This is hardly kosher.
It goes without saying that the issue needs a fix at source. Banks must be taken to task for irresponsible reporting, with a threat of monetary compensation to disincentivize laxity. In most mature markets, this is secured by legislation (FCRA. CCA, Privacy Act etc). If needed, the government must consider similar consumer protection laws in India as well.
The other issue with credit reporting is coverage. There is a strong argument to expand consumer behaviour monitoring, in the Indian context, to telecom payments. The rise of wallets and payment solutions are blurring the lines here in any case. Yet, this could well be an apres moi le deluge moment. Dimensionality of credit data would multiply (volume, churn, nature of disputes etc) were this to happen. It makes it incumbent to establish the ground rules now, with a much better defined financial services scope.
Crises, as students of economics know, are cyclical by their very nature. Hence, we must act now, so as to be better prepared when the next unforeseen strikes. Lest history judge us differently.
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