With over 570 members, including banks, financial institutions and non-banking financial companies, Credit Information Bureau India (Cibil) provides data on borrowers to various lending institutions. In an interview to FE’s Kumud Das, the agency’s managing director, Arun Thukral, says credit information enables lenders to extend credit to many additional customers at lower costs. Edited excerpts:
How do borrowers and lenders use information from a credit bureau and how does it serve their purpose?
In today?s scenario, both borrowers and lenders are aware of the functioning of a credit bureau and the benefits associated with it. The increased usage of Cibil credit information reports and Cibil TransUnion Scores by credit grantors during loan disbursement has showcased a growing trend. Credit grantors are experiencing benefits associated with the usage of Cibil score for reliable credit decisions and individuals are approaching us before they apply for credit to know their credit standing, which will help them improve their credit history and avail credit on better terms. We encourages consumers to maintain greater self discipline in meeting financial commitments by allowing them to build reputational collateral through appropriate repayment behaviour.
How would a lender set the price if there is no objective credit information of the borrower?
Without objective credit information, lenders set prices according to average risk levels or use subjective, less precise methods of evaluation. This results in products that are excessively expensive for low-risk consumers and unfairly inexpensive for high-risk consumers. By making the costs of extending credit lower, credit information enables lenders to extend credit to many additional customers, and at overall lower costs. Implementation of this information network fuels business growth while boosting credit penetration and macro financial development.
Do you think credit bureaus are now more bank-centric and less customer-centric?
Cibil creates a transparent and information-centric environment for lending. It caters to both the financial lending institutions and the borrowers (individuals). Previously, lenders would treat all loan seekers equally.
Each applicant, if approved by the lender?s internal credit policy, would get charged the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all borrowers, in order to compensate for the possible default of a small portion of the loans disbursed.
How should a borrower get the credit information report?
Cibil’s credit information report (CIR) and scores provide lenders the ability to differentiate between those who have honoured their obligations responsibly and those who have defaulted. Hence, prior to commencing the loan hunt, it is advisable for the consumers to purchase and review their own Cibil CIR and score. It will help them understand what the lender will review while evaluating your application.
There are instances where wrong data are being provided about the customer by the credit bureau. What remedial steps you are taking for this?
Banks and financial institutions provide data to Cibil and if a consumer believes that there are discrepancies on his or her own CIR, they can write to Cibil. We have a dispute resolution mechanism in place. All the consumer needs to do is to purchase his or her own CIR, identify the erroneous information and provide name, address, date of birth, an enquiry control number and the nature of the error. Once Cibil receives this information, we will write to the respective credit institutions and make updates to the information post confirmation from them.
Recently you had introduced credit score for retail lenders. How is the response?
The response for the Cibil TransUnion has been very encouraging. The Cibil TransUnion Score, which plays a critical role in the loan approval process of credit institutions, is available to consumers for R450. Knowing their Cibil TransUnion Score will enable consumers to better manage their credit history, avail speedier access to credit and derive benefits associated with good credit history.
The score is provided along with the Cibil CIR. The Cibil TransUnion Score is a three-digit numeric summary (ranges from 300 to 900) of a consumer?s credit history, compiled from information received from credit institutions who are members of Cibil. An individual’s Credit Score provides a credit institution with an indication of the “probability of default” by the individual based on his or her credit history.
