Credit Information Bureau Formation Hits Roadblock

The formation of a credit information bureau jointly by financial sector majors has reportedly got stuck following the failure to secure a licence for the entity.

The government has questioned the concept of setting up a credit rating agency by banks. It has objected to making available data relating to banking defaults to general public and other agencies.

Factors such as disclosure of the name of defaulters and willful defaulters were also questioned by the Central government, said Shantha Raju, the general secretary of the All India Bank Officer's Confederation.

In the absence of such an information bureau, it would be difficult for bankers to evaluate risks involved in advancing a loan.

"Promoters of a company, after having defaulted on loans from one bank, can get a loan from another bank through an altogether different company that he floats in the meantime. This loan also gets transformed into non-performing assets," said Raju.

The entity was to be christened Credit Information Bureau (India) Ltd (CIBIL) and was expected to have banks, financial institutions, consumer finance companies, housing finance companies and credit card companies and potentially all providers of any form of credit as potential customers.

Nevertheless, this would require amendment of the Banking Regulation Act and banking secrecy norms. Under existing norms, such data cannot be shared by banks.

One proposal for the credit information entity was floated by the State Bank of India (SBI), which was to hold 40 per cent of the company's equity.

CIBIL was supposed to collect consumer and commercial credit-related data, and using such data, create, package, market, sell and distribute credit reports to banks, financial institutions and other financial intermediaries, and businesses that agreed to contribute their respective credit-related data to CIBIL on a regular and continuous basis.

Data-sharing was planned to be within a closed group of data providers. It was expected that all credit grantors would eventually be part of this closed group.