Loan approvals may be linked to phone bills, insurance premium payments

Applying for a loan? Check if you’ve paid your telephone bill or insurance premium first. Soon, your loan proposals will not depend only on your credit card and debt payment record with banks but also on whether you’ve paid your phone bill, insurance premium and stock broker dues on time.

The Reserve Bank of India today paved the way for banks to access more information on potential borrowers by granting in-principle approval for the registration of four companies under the Credit Information Companies (Regulation) Act (or CIC Act). These companies included Credit Information Bureau (India) Ltd or Cibil, Equifax Credit Information Services, Experian Credit Information Company of India and Highmark Credit Information Services.

At present, Cibil is the largest agency, with database on around 135 million customers of 164 banks and non-banking finance companies. Once these companies receive the final registration and operational guidelines, they will be able to collect information from more sources.

Cibil provides a credit score of up to 900 based on the borrower’s liabilities and payment history. A delay in the payment of an instalment affects the credit score. Similarly, if a cheque is dishonoured, the credit record is impaired. Cibil provides the score and banks, based on their estimate of risk, decide whether to give a loan or not.

From the next financial year, Cibil will also be able to provide citizens with the details of their credit history. The operational details for this service are being worked out, but the broad plan is to provide individuals a toll-free number or a website login to access the details after making a payment.

“Identity theft is a big issue and we are trying to make the system foolproof. The problem is compounded by the lack of social security numbers,” Cibil Managing Director Arun Thukral said. He, however, added that the process would be similar to getting details of your credit cards or mobile connections where certain queries need to be answered.

The move to collect information from more sources is expected to help banks deal with unsecured loans and first-time borrowers, bankers said.

But the actual implementation of the combined system that includes information not just from banks and finance companies could take a while. The details of utilities that could be covered are not clear. The draft rules only provided for insurance companies, stock brokers, credit rating agencies and telecom service providers. Utilities such as electricity and water supply providers were not listed.

Clarity will emerge once RBI issues the final set of guidelines, though agencies such as Cibil have been pushing for more agencies to be covered. The regulations issued so far only provide for insurance companies, stock brokers, credit rating agencies and telecom service providers to be brought under the ambit of the CIC Act.