RBI mulls public credit registry to improve credit culture

The Reserve Bank is looking at setting up a high level task force to prepare a roadmap for public credit registry (PCR) to help control loan defaults, improve credit culture and promote financial inclusion.
Making a strong case for it, RBI Deputy Governor Viral Acharya said a transparent and comprehensive PCR is the need of the hour in India.
Speaking at the 11th Statistics Day Conference at RBI's Central Office here, he said such registers help enhance efficiency of the credit market, increase financial inclusion, improve ease of doing business and help control delinquencies.
"Governor (Urjit Patel) and I hope we can set up, as a matter of priority, a high-level task force that can provide a roadmap for attaining this goal of developing and unleashing a powerful credit information system for our country," Acharya said.

Statistics Day in India was celebrated earlier this week on the birth anniversary of Late P C Mahalanobis, who graduated with honours in Physics in 1912 and was subsequently attracted to the realm this field.
Generally, a PCR is managed by a public authority like the central bank or a banking supervisor, and reporting of loan details to the PCR by lenders and/or borrowers is mandated by law.

Acharya said a PCR, if put in place for India, will help in credit assessment and pricing by banks; risk-based, dynamic as well as countercyclical provisioning, and supervision and early intervention by regulators.

PCR will also help in understanding "if transmission of monetary policy is working, and if not, where are the bottlenecks and, (also) how to restructure stressed bank credits effectively".
Acharya said that in the absence of a central database of credit information, "the creditors are restricted to the information they have about their clients based only on their limited transactions or interactions with the clients, and this could lead to suboptimal outcomes".
On how a PCR can help in India, he said it is required to improve the credit culture in the country.
"It has been demonstrated in the 'Doing Business 2017' report that credit information systems impart transparency in the credit market, following which access to credit improves and delinquencies decrease," he said.

At present, several Indian banks burdened with mounting NPAs appear less confident in taking credit decisions, he noted.
"A transparent public credit registry would help the bankers to rely on objective data for making credit decisions and also enable them to defend their actions with market evidence when subjected to scrutiny," Acharya added.
PCR will provide a complete picture that is necessary for supervisors and policy makers to assess credit risk of the entire system.
Acharya said large borrowers get a preference in credit markets due to their existing credentials in the public space. They have established credit history, brand value, and supply of collateral.

"In contrast, small and marginal aspirants, start-ups, new entrepreneurs, and small businesses in micro, small and medium enterprises (MSME) sector are disadvantaged as they lack many of those desired qualifications for credit," he said highlighting the importance of PCR.
RBI had set up the Central Repository of Information on Large Credits (CRILC) in 2014-15. It is now one of the most important databases for offsite supervision. Here the banks report credit information of their large borrowers.
It covers around 60 per cent of the loan portfolio and around 80 per cent of the non-performing loans of SCBs.
Besides, there are private Credit Bureaus (CBs), including include Credit Information Bureau (India) Limited (CIBIL), Equifax, Experian, and CRIF Highmark.