New Delhi: The Reserve Bank of India (RBI) on Wednesday said it would set up a public credit registry—an information repository that collates all loan information of individuals and corporate borrowers.
A credit repository will help banks distinguish between a bad and a good borrower and accordingly offer attractive interest rates to good borrowers and higher interest rates to bad borrowers.
The move is based on the recommendations of a committee it set up last year, headed by Y.M. Deosthalee. The committee submitted its report in April and the central bank made it public on Wednesday.
The public credit repository will address information asymmetry, improve access to credit and strengthen the credit culture among consumers. It can also go a long way in addressing the bad loans problem facing the banking system, as corporate borrowers will be unable to lend from multiple banks without disclosing their existing debt.
Setting up the public credit registry will help improve India’s rankings in the World Bank’s ease of doing business index, RBI deputy governor Viral Acharya indicated in a post-policy press conference.
The repository will be set up in a “modular and phased manner”, RBI said in a statement along with the monetary policy adding that it will set up an implementation task force to undertake the logistics for the next steps in setting up of the PCR.
The task force has recommended that the registry should be set up by RBI and in due course, the central bank may consider moving the registry to a separate non-profit entity. It has envisaged it as a registry of all credit contracts, duly verified by reporting institutions, for all lending in India and any lending by an Indian financial institution to “an Indian natural or legal person.”
Accordingly, it has batted for the PCR to serve as a registry of all credit contracts irrespective of any threshold amount and has said it should be backed by a legal framework. The committee has also recommended that registry should also capture data such as external commercial borrowings, market borrowings, and all contingent liabilities to provide a holistic picture about the borrower’s indebtedness. It has also suggested that the registry should capture both positive and negative information for all loans and borrowers be able to access their own history.
Addressing privacy concerns, the committee has suggested that the data will be available to stakeholders like banks strictly on a need-to-know basis and privacy of data will be protected. It has placed the onus of data quality on the reporting entities and suggested action against the institutions in case of any violations in rules.
To ensure a comprehensive database, the committee has also proposed linkages with other defaulter databases like the wilful defaulter’s list and that maintained by Export Credit Guarantee Corp. of India as well as with other information databases like goods and services tax network data and utility and insurance payments data.