The Telegraph
Since 1st March, 1999
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Law to spill borrowers’ beans

Calcutta, May 11: The government is ready to relax banking secrecy laws to help banks and financial institutions (FIs) share details of their borrowers with the Credit Information Bureau of India Limited (CIBIL).

“We are looking at the banking secrecy laws and how they can be improved to allow greater sharing of information by banks and FIs with the credit information bureau,” a senior official of the finance ministry said.

However, the privacy issues of borrowers will be adequately addressed while drawing up the amendments.

An indication that legal changes are imminent came from finance minister Jaswant Singh in his February 28 budget speech, where he said the government wants to provide more legislative support to CIBIL.

The move to amend the laws for greater flow of information to CIBIL and to make the data available for sharing among lenders is expected to go a long way in containing the increase in non-performing assets (NPAs).

Lenders will be able to keep track of borrowers who are inclined to manipulate the system by shifting from one institution to another, despite being defaulters, the official said.

The banking secrecy laws laid down under the Reserve Bank of India Act specifically debar lenders from parting with information on borrowers to anyone except to the central bank itself and that too, when specifically called for, under a prescribed format. However, the information can be shared with the specific consent of borrowers — not easy at the best of times.

Secrecy clauses cease to have their impact once a case of default reaches the court since details of the account automatically come into public domain. In a situation like this, CIBIL can provide information only on borrowers whose accounts are embroiled in legal tangles.

This again is limited to defaults of Rs 1 crore and above and other suit-filed accounts of wilful defaulters of Rs 25 lakh and above.

CIBIL is a four-way joint venture set up over a year ago by State Bank of India, Housing Development Finance Corporation, Dun & Bradstreet Information Services India and TransUnion International Inc.

The bureau provides credit information dealing with credit facilities enjoyed by a borrower from the financial services sector and his payment track record.

The primary task of CIBIL is to gather credit-related information regarding individual and corporate or commercial borrowers and maintain a database of such information. The bureau then sells the information in the form of credit reports to a closed user group of lenders for a price.

CIBIL says data sharing will help reduce “adverse selection" by the credit grantors and assist in pricing decisions.

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