The Credit Information Bureau of India (Cibil) collects and maintains records of individuals’ payments pertaining to loans and credit cards. These records, submitted by banks and other lenders on a monthly basis, are used to create credit scores of individuals, showing their risk quotient, which, in turn, banks take into account while advancing credit.
The RBI had last month recommended that credit information companies give customers a free copy of their credit score to promote financial discipline. In an interview with Shayan Ghosh, Cibil managing director Arun Thukral says this will not help customers. Excerpts
RBI deputy governor KC Chakrabarty recently voiced concerns about the accuracy of Cibil’s data. What are the challenges in this respect?
When we launched the bureau in 2004, we started with a database of 4 million borrowers and, today, we have over 300 million customers. It’s not that evolution has not taken place. Earlier, out of 100 enquiries, we could return only 30 reports. However, as our database has grown, on an average, we can deliver 70-75% of the reports across all product categories. Finally, we are also dependent on the respective credit granters and, if they give us data of borrowers that doesn’t have any pan number, date of birth or voters identification number, I cannot alter them as the ownership of the data lies with the banks.
There was a time when acceptability of public sector bank data was 30% and, today, it is 70%. So, it’s a gradual process, we can do our job, but, if we don’t get the correct data, we can at the most analyse and send back the data. It has to be a two-way process; it cannot be done in isolation. In this regard, we are working with the Indian Banks’ Association (IBA) and the banks individually too.
How does secured and unsecured loan fare when it comes to credit score?
Secured lending like housing loans already contain a collateral and, thus, banks are safer. In case of a credit card, if the customer does not pay, the bank cannot do much; there is nothing as back-up. However, using a credit card does not bring down your credit score.
If a customer is using only an unsecured product like a credit card, the risk profile will be very different from another customer who also has a housing loan. But if a customer is paying the credit card bills on time, the credit score is not going to be affected. However, a first product that any youngster who comes into the credit market is a credit card while secured loans come much later in life.
The RBI has recommended providing free credit score to all customers. What is Cibil doing on this front?
As of today, we are the only credit bureau delivering credit reports to customers. So, let the market mature and, over a period of time, we will look into it. Anyway, I do not think giving one report free will help the customers. Normally, people look into a credit report or a credit score when they are trying to apply for a loan. Otherwise, they don’t even bother about it. However, I feel it should rather be an ongoing process and there should be a subscription model as is prevalent globally through which you can monitor your credit score on a regular basis. With more than 1 billion population and the government unable to educate even an iota of Indians, how do it expect us to give free credit report?
Since your data comes primarily from banks, do you plan to include microfinance institutions too?
Almost five years back, we were almost getting into it collecting data from MFIs, when the Andhra Pradesh microfinance crisis happened and since 80% of the MFI business came from Andhra, we did not know what would happen to our investments. However, today as the microfinance sector matures, this is definitely something we are looking at and, in the very near future, we would be taking their data too.
Cibil has completed 10 years of existence; how do you see competition from newer players?
I think that, as of today, there is not much of completion in this market as other players are there for just 3-4 years and the market is not as mature as it is in the developed nations where credit information has been present for close to 100 years.
Credit Sudhaar is India’s first Credit Health management & improvement company whose goal is to help clients to Restore, Enhance and Protect their Credit and make them credit healthy
Courtesy: Financial Express