Why is a Public Credit Registry important?

Headline : Why is a Public Credit Registry important?

Details :

What is Public Credit Registry?

• A Public Credit Registry is set up by the central bank and reporting of loan details to the Registry by lenders and/or borrowers is mandated by law.

• A public credit registry is an information repository that collates all loan information of individuals and corporate borrowers.
• A credit repository helps banks distinguish between a bad and a good borrower and accordingly offer attractive interest rates to good borrowers and higher interest rates to bad borrowers.
• PCR will address issues such as information asymmetry, improve access to credit and strengthen the credit culture among consumers.
• It can also address the bad loan problem staring at banks, as corporate debtors will not be able to borrow across banks without disclosing existing debt.
• Setting up the PCR will help improve India’s rankings in the World Bank’s ease of doing business index.

• Currently, there are four credit bureaus in India — Credit Information Bureau (India) Limited (CIBIL), Equifax, Experian, and CRIF Highmark.
• These bureaus provide credit scores and allied reports and services.
• Their analysis reports are used for issuing credit cards and for taking decisions mainly on retail loans.
• The bureaus are regulated by the RBI under the Credit Information Companies (Regulation) Act, 2005.

 

Background

• The Reserve Bank of India (RBI) formed a high-level task force on public credit registry (PCR) for India, which was chaired by Y M Deosthalee.

• The committee has suggested that the registry should capture all loan information and borrowers be able to access their own history.
• Data is to be made available to stakeholders such as banks, on a need-to-know basis and data privacy will be protected.

 

Why PCR is necessary?

• Credit information is now available across multiple systems in bits and pieces and not in one window.
• Data on borrowings from banks, non-banking financial companies, corporate bonds or debentures from the market, external commercial borrowings (ECBs), foreign currency convertible bonds (FCCBs), masala bonds, and inter-corporate borrowings are not available in one data repository.
• PCR will help capture all relevant information about a borrower, across different borrowing products in one place.
• It can flag early warnings on asset quality by tracking performance on other credits.

 

PCR in other countries

• PCR in other countries now include other transactional data such as payments to utilities like power and telecom for retail consumers and trade credit data for businesses.
• Regularity in making payments to utilities and trade creditors provides an indication of the credit quality of such customers.

 

How it can support in financial inclusion?

• Access to credit information, including debt details and repayment history would drive innovation in lending.
• For example, currently most banks focus on large companies for loans and consequently the micro, small and medium enterprises are left with limited options for borrowing.
• With satisfactory payment history and validated debt details made available, it will increase the credit availability to micro, small and medium enterprises along with deepening of the financial markets.
• This will support the policy of financial inclusion.

Section : Economics