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?In future we will see differential rates?

Already the benefits to retail customers are evident. Lenders are wooing borrowers with better histories

Even if you have been prudent in repaying all your loans and have maintained a squeaky-clean credit history, you pay the same interest rates as your profligate neighbour who has even defaulted a couple of times. But the day is not far off, says Arun Thukral, managing director, Credit Information Bureau (India) Ltd (CIBIL), in this interview with our correspondent, when prudent borrowing behaviour will be rewarded with lower interest rates. And this will be possible because of the vast, and growing, database of credit history that CIBIL has collated.

When and in what circumstances was the idea of a credit information bureau first mooted?
The idea of a credit information bureau was mooted by the Reserve Bank of India after the South Asian crisis. After the crisis, PSU banks had become wary of lending to retail consumers. They preferred to lend only to corporates, as information was available on them. At this point, the need for a credit information bureau was felt and a committee was formed. Finally, SBI Bank and HDFC promoted CIBIL with 40 per cent equity each. There were two technical partners also ? Dun and Bradstreet and Trans Union International ? which had 10 per cent stake each. Trans Union was the technical partner for the retail or consumer stream, and Dun and Bradstreet for the corporate stream.

How many shareholders do you have at present?
Today we have 16 shareholders. SBI, HDFC, ICICI Bank, Dun and Bradstreet and Trans Union hold 10 per cent equity stake each. All other banks and two financial NBFCs hold rest of the stake.

How difficult was the collection of data in such a large country as ours?
Collection of data was a big challenge. Cibil was incorporated in 2000, but it took us almost four years to collect a database of 4 million. We had 13 members then, who were ready to share the data among themselves. It was at that point in time that a central repository came into being. We launched the consumer stream first.
We have to take the consent of the borrower before we can start sharing his data, and this obviously creates issues that we face even today. In case of individuals, we were able to get the consent, but the situation was complicated in case of corporates as business entities were just not comfortable sharing data. So it took another two years before we were able to launch the corporate stream in 2006.
At this point, we had a database of just 0.6 million, which has now grown to 2 million. At the consumer level, the count has increased to 127 million, which is contributed by 162 members. The number is growing. Every week we get one or more requests from credit grantors looking to become CIBIL members.

How will this database benefit corporate and retail customers?
As pointed out earlier, banks were wary of lending to retail customers, because they had no information. And even if the credit grantor knew about the borrower, the information was limited to the portfolio and history he shared with that particular grantor. The grantor did not have access to the information pertaining to that customer?s relationship and history with other credit grantors, which is crucial to know a person?s credit worthiness.
We work on the principle of reciprocity. As of today, only members who share data with us can get information from us. But the CIC Act (Credit Information Company Act, 2005) was cleared by the government last year. Once that is implemented, it will open up a lot of other business areas. This could include telecom companies, insurance companies, and others could take membership of the bureau.

As of today, the principle of reciprocity continues. So as the information trickles in, banks have access to a universe of over 127 million borrowers from where we capture his multiple relationships, and provide a comprehensive report. This information gives the lender an idea of how leveraged the borrower is.

Do you only keep information on the defaults that a borrower has made? Or is the information more comprehensive?
We are a composite bureau. We maintain a record of both positive and negative history. We do not label any borrower as a defaulter. We simply give as much information as we can. Then it is up to the credit grantor to take a decision based on his risk-taking ability.
Grantors do not solely relay on the information provided by CIBIL. They follow their due diligence and use a host of information before taking a decision. But certainly the availability of credit history and data has helped grantors reduce turnaround time.

How do you rate the credit worthiness of an individual or an entity?
We have introduced a score system, which is known as the CIBIL-Trans Union Score. It is a generic score and is used for all products like housing loan, auto loan or a credit card. This score has a range of 300 to 900. A score nearer to 900 is considered better. For instance, a borrower goes to a bank and applies for a loan or a credit card. As the bank is connected to the servers of the credit bureau, the bank is able to access his credit history in real time. And the score helps in judging whether the bank should go ahead and clear his application or not.

Why a range of 300-900?
One can take any range, say 0 to 100, but we consciously chose 300-900 as this is the range that is followed globally. According to the algorithms and calculations that we did over the years, this range was found suitable.

What parameters are considered while giving this score?
A large number of variables are taken into account to arrive at the final score. The number runs into hundreds. But the biggest weightage is given to credit history. If your credit history is good, your score is bound to be good. Other major parameters include the number of enquiries against you, whether you shopping or don?t, how many relationships you have with different grantors. For instance, you might have multiple credit cards. There will be a weightage to that. We also take into consideration the usage you have. Say, for instance, you have a credit card with X limit and you are always using it to the maximum, or you use 50 per cent of the set limit. There are different weightages to each of these scenarios.
The model is developed over a period of time. A borrower needs to have at least two years of history before we can come out with a score.

What is an ideal score?
Obviously, a score of 900 is the best and 300 the lowest. But different credit grantors follow different risk-management policies. A score of 700 might be good enough for a credit grantor that is aggressive and looking for greater market share. He might want to take a calculated risk and go ahead with this score. A conservative lender, on the other hand, might want to clear applications with a score of 800 and above only.
Such credit rating also helps borrowers become more disciplined. If you have a good credit history, it will help you. Credit grantors are always making offers for upgrading their services ? like a higher credit card limit, access to special services for a lower fee or no fee at all ? to borrowers with a good credit history. Thus, there will be benefits for borrowers as well. As the system develops and becomes more mature, we would also have different interest rates for people having different credit history.

It is already happening indirectly. Credit grantors are trying to woo borrowers with good credit history with offers such as waiver of processing fee in case of a loan, higher credit limits, waiver or lower fee for special services, and so on.
There are a lot of reports from throughout the world that say that wherever there is a credit bureau, credit penetration has also increased. The more information grantors have, the more comfortable they are in making decisions.

How often do you revise these ratings?
We don?t have to keep revising the data but we do review it once in a year. If things haven?t changed drastically, then we need not change the score.

Retail consumers do not have access to your information. So how do they stand to benefit from your information bureau?
As of now, we work on the principle of reciprocity. Hence, individuals cannot access our information. However, as soon as the guidelines for the CIC Act come out, which would be in the near future, we will be able to share the information with retail consumers as well. Individuals will be able to access their own credit information record.

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First published on: 08-12-2008 at 13:33 IST
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