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 signals of stress were unmistakable in our portfolio, and were 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 house-cleaning, with varying degrees of success, across all players.
Though mandarins at FinMin and the RBI downplayed it, this improved hygiene had a major hand in ensuring that our country emerged from the 2008 GFC 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 the 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.
The 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 the lessons of 2008 and its aftermath are entirely forgotten.
The most visible of these is our weak credit reporting framework. Despite having moved marginally away from Indian consumer finance (in a work sense), I still hear enough stories of inaccurate reporting of defaults, especially around old write-offs that have simply been misrecorded. 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, and disputed charge write-offs 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 come to light when the consumer applies for fresh credit, often for big life events like a 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 the charge being in the hundreds versus a 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 disincentivise 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.
This brings us to the issue of coverage, notably the recurring demand to expand consumer behaviour monitoring to telecom and other utility payments. The rise of wallets and payment solutions is blurring the lines here in any case. Yet, this could well be an après moi, le déluge moment. The dimensionality of credit data — volume, churn, nature of disputes, etc — would multiply overnight were this to happen. This makes it incumbent to establish firm ground rules now, with a sharply 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 one strikes. Lest history judge us differently.
Though mandarins at FinMin and the RBI downplayed it, this improved hygiene had a major hand in ensuring that our country emerged from the 2008 GFC 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 the 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.
The 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 the lessons of 2008 and its aftermath are entirely forgotten.
The most visible of these is our weak credit reporting framework. Despite having moved marginally away from Indian consumer finance (in a work sense), I still hear enough stories of inaccurate reporting of defaults, especially around old write-offs that have simply been misrecorded. 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, and disputed charge write-offs 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 come to light when the consumer applies for fresh credit, often for big life events like a 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 the charge being in the hundreds versus a 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 disincentivise 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.
This brings us to the issue of coverage, notably the recurring demand to expand consumer behaviour monitoring to telecom and other utility payments. The rise of wallets and payment solutions is blurring the lines here in any case. Yet, this could well be an après moi, le déluge moment. The dimensionality of credit data — volume, churn, nature of disputes, etc — would multiply overnight were this to happen. This makes it incumbent to establish firm ground rules now, with a sharply 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 one strikes. Lest history judge us differently.
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