SHARE AND SHARE ALIKE: Offenders’ names will be passed onto other banks

You took a car loan or splashed on your credit card. Never mind the bills or repayment. If your car was taken away, you could apply for a fresh loan from another bank. It was the same with the credit cards, with the banks falling over backwards to hand you that magical rectangle of plastic. And even when your present card was “deactivated” for non-payment of bills, you could still splurge — on another credit card issued by another bank. The system, you could say, was perfect for swindlers.

But not any more. With the country’s first credit information bureau launching its operation in Mumbai, the commercial capital, the days of the defaulters — as the offenders are rather politely known in banking parlance — seem numbered. It’s no longer easy to take the banks for a ride — be it with a credit card or a home or car loan. Credit Information of Bureau of India Limited ( CIBIL) — a partnership between the State Bank of India, HDFC Ltd, Dun & Bradstreet Information Services India Pvt. Ltd, and Trans Union International Inc. — is tracking the “credit behaviour” of consumers (or loan-takers, to be precise).

If you fail to pay off the loans you have taken from a bank, chances are that the doors of all banks will be slammed shut in your face. As many as 92 banks and other financial institutions, which have so far signed up with CIBIL, have started sharing information on the defaulters. They include private, state-run and foreign banks.

No doubt it’s good news for the entire banking industry at a time when the non-performing assets that result from bad loans are mounting, with many of the once profitable banks now ailing. Better news is that consumers, too, will benefit from this. “The genuine customers will now get better and faster services from the banks for their creditworthiness,” says Satish Mehta, managing director of CIBIL. “You shouldn’t be surprised if genuine customers get benefits even in terms of interest one day.”

CIBIL will cater to both commercial and consumer segments, including individuals and private and public limited companies. Besides banks and financial institutions, it’s also open to state financial corporations, non-banking financial institutions and housing finance companies, among others.

The bankers, expectedly, are happy. “Unlike the United States, we don’t have adequate database in India on defaulters, so there was little we could do about people who took loans but wouldn’t pay back. CIBIL is the answer to this,” A.R.Gokulakrishnan, the Mumbai-based vice-president (credit) of UTI Bank, says. He says the banks will now identify, based on information provided by the bureau, the defaulters and block them from taking out fresh loans.

Pralay Mondal, the head of HDFC Bank’s credit card division, agrees. “CIBIL would make our job a lot easier while screening the card applicants. Banks could not do much earlier because we did not have credit profiles of the customers at our disposal,” he says.

India has roughly 10 million credit card-users, with the default rate nudging eight per cent. A consumer often has several cards from different banks. Earlier, banks offering credit cards were virtually helpless if an errant customer did not pay the money he owed to a credit card company. He could still spend as he liked, using his other cards. But it won’t be easy for such individuals any more, with the CIBIL making information on the errant customers available to the credit card companies. “The data we are going to collect from CIBIL and share among us, will help keep the bad customers in check to a large extent,” Mondal says. “It’s a good beginning in the right direction.”

Mehta says the bureau would, to start with, collect information from its members on a reciprocal basis. In other words, a bank will let CIBIL know of a defaulter, whose name the bureau, in turn, will share with other banks.

Later on, CIBIL also plans to collect the information “already in the public domain” to bolster its database. The Reserve Bank of India has already asked credit-grantors to submit data relating to their borrowers to CIBIL on a regular basis. It’s also asked the banks to include a “consent clause” in all loan documents signed by the borrowers, enabling them to share the information with CIBIL.

Compiled from information received from different credit-grantors, CIBIL will prepare a credit information report (CIR) containing the borrower’s credit payment history. “History is always a guide to the future and the information provided by us will help the credit-grantors make better and wiser lending decisions,” Mehta says.

However, the CIR will show only “factual” credit-related information on a borrower, but won’t make any comment on whether the credit should be granted or not. It’s for the banks or other credit grants to make the decision. “CIBIL does not grant or deny credit,” a bureau official says. CIBIL members can use the information for taking any “valid credit” decisions, but “further disclosure (of that piece of information) to any person” is forbidden, according to the bureau guidelines.

There is a small hitch, though. CIBIL asks for information on “both good and bad” customers from its members to create their profiles. While banks are ready to provide the bureau with information on their “bad customers,” very few would be willing to part with the information on their “creditworthy customers” for fear they could be “poached” by the competition. “There is no question of providing information relating to our reliable customers for obvious reasons. We would only give and take the negative information,” Mondal says.

But then, that should not pose an insurmountable problem. Given its overriding advantages, CIBIL is here to stay. So defaulters, your time is up.