RBI asks banks to use credit information report for credit appraisals

The Reserve Bank of India (RBI) has directed banks to use credit information reports (CIRs) in all lending decisions and opening of accounts. Banks and financial institutions should include suitable provisions for obtaining CIRs from one or more core Iinvestment companies (CICs) in their credit appraisal processes, so that the credit decisions are based on information available in the system, RBI said.

In this context, RBI said the Aditya Puri committee report has suggested that since commercial borrowers' data is not adequately populated with the CICs, to start with, banks / FIs may institute board approved policies for credit bureau usage in all lending decisions and account opening to retail borrowers/consumer borrower segment.

At present, the databases of CICs are not adequately populated with commercial borrowers' data. RBI has suggested that banks and FIs report data in respect of their corporate borrowers to the CICs in a timely manner with immediate effect helping CICs to populate their databases with commercial data records over a six-month period.

After a period of six months, banks / FIs should also start using data available with the CICs in respect of commercial / corporate borrowers, under a board approved policy, RBI suggested.

RBI has suggested separate, standardised formats for streamlining the process of data submission by banks/FIs to CICs format for consumer and commercial borrowers.

RBI has decided to constitute a technical working group comprising representatives of scheduled commercial banks (a member each from a public sector bank, a private sector bank and a foreign bank), urban cooperative banks, regional rural banks (RRBs), all-India notified financial institutions, CICs, NBFCs, HFCs, IBA and MFIN to institutionalise a continuing mechanism for reviewing and making changes where necessary to the data formats.

The working group would review the data formats periodically, say once a year, and suggest modifications to the same. It would frame rules on all data fields for various data formats, viz. consumer, commercial and MFI. The data formats after finalisation by the group will be submitted to RBI for approval.

In order to implement the recommendations relating to the technical working group, Credit Information Bureau (India) Limited (CIBIL) will act as the convener of the group and take the lead to operationalise the recommendation.

To start with, the working group may take up, on a priority basis, changes in the commercial borrower segment, where there is an urgent need to capture data required for sharing of information among member banks / FIs under consortium / multiple banking arrangements and to aid in implementation of the instructions. It would also incorporate the additional fields as may be required.

CICs should share with banks / FIs the logic and validation processes involved in data acceptance so that instances of data rejection can be minimised.

The reasons for rejection need to be parameterised and circulated among the banks / FIs concerned. Rejection reports should be made simple and understandable so that they can be used for fixing reporting and data level issues. Banks / FIs should rectify the rejected data and upload it with the CICs within seven days of receipt of such rejection report.

The committee has proposed a common Data Quality Index to assist banks / FIs in determining the gaps in their data and also move towards improving their performance over a period of time. In addition, they would also be able to rank their own performance against that of their peers and identify their relative position.

To facilitate the understanding and interpretation of credit scores in an easy and consistent manner, it is advised that the CIBIL method of calibrating credit score from 300 to 900 be adopted by the other CICs also, within a time period of six months, so that they have a common classification of credit scores.

RBI has not suggested a standardised format for credit information report (CIR) as it considers such differentiation as essential to promoting competition in the market.

However, CICs should standardise the CIR terminology and also have some mandatory key fields. This would provide some comparability for the users between CIRs received from two or more CICs.

Every bank / FI should take into account the best practices while formulating or reviewing the policy and procedure under the Credit Information Companies (Regulation) Act, 2005 (CICRA) with the approval of their board of directors.

CICs should also take into account best practices and put in place a system for consumer complaint redressal with the approval of their board of directors, RBI said, adding that such policy should be displayed on their web sites.

RBI said it would further examine the other recommendations of the committee before taking a decision on their implementation.

Banks / FIs and CICs are advised to implement the instructions contained in this circular, as per the time schedule indicated.