Page 27 - Banking Finance September 2022

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the borrower's credit history is accessible to all lenders in a This is where third-party credit information companies come
more transparent manner. in to play, those that will pool the data from lenders and
share the information with other lenders as per the laid
Why PCR, when Credit bureaus already down policy. Globally, Private Credit Bureaus (PCBs) and
Public Credit Registries (PCRs) both operate in this space.
capture credit history data?
PCBs can be legislatively authorized to receive credit data;
Yes, India already has private credit bureaus. Credit however, being for-profit enterprises, they may focus
Information Bureau India Ltd or CIBIL, for instance, collects primarily on those data segments around which it is most
data on loan repayment. Central Repository of Information profitable to build a business model (e.g., provision of credit
on Large Credits (CRILIC) collects information on large scores based on data gathered). Indeed, it is found
borrowers with exposure of over Rs 5 crores. But there are internationally that a PCR, being a non-profit enterprise, is
differences between a private credit bureau (PCB) and a able to ensure much better data coverage than PCBs. In
PCR. The key difference is that PCBs are for-profit turn, the PCBs when given access to comprehensive data
enterprises, privately controlled and therefore tend to focus from a PCR can provide better and greater value addition
on the more profitable data segments. A Public Credit through data analytics and innovations, complementing the
Registry, on the other hand, is a non-profit entity, and PCR.
therefore brings more comprehensive data coverage, from
the largest to smallest borrowers. A PCB can bring more One can easily presume that to be useful, it is important for
value addition through data analytics and complement a credit information systems to gather complete credit
PCR. information, possibly even asset-side and cash-flow details
about the borrower. Also, the latest information is more
As borrowers build history, lenders would like to protect the important, giving rise to the demand for near-real-time
information of their profitable customers and may not be data. The High-Level Task Force examined the data gaps in
ready to share it directly with other lenders. This way, the current credit information system in India and
borrowers can get locked to their initial lenders, become recommended that a PCR be set up, backed by an
vulnerable to gouging in loan terms, and worse, be unable appropriate Act, to improve the information efficiency of the
to convey their credit quality to new lenders if existing credit market and strengthen the credit culture in India.
lenders experience problems of their own (such as due to
capital erosion from recognition of losses, as was witnessed
Will it solve some of the banking
in India over the past decade in the form of high retail and
MSME cost of borrowing from banks due to spillover from sectors' big problems including that of
their large corporate borrower loans turning non- bad loans?
performing).
By bridging the information gap, a public credit registry will
ensure credit flow to the last mile customers that have been
left out of the formal financial fold. The World Bank
estimates the current credit gap for MSMEs in India to be
at $380 billion. Better information on borrower's credit
history will also help banks avoid the risky borrowers, and
thereby manage their asset quality better. Creating a public
registry of this kind will also aid ease of doing business in
India.

The Welcome move by RBI
The RBI has come out with a draft Public Credit Registry of
India Bill for review by experts. The registry will first be

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