Concerns raised by RBI over Credit Information Companies (CICs)

Subject: Economy

Section: Monetary Policy

Reserve Bank of India (RBI) expressed concerns over Credit Information Companies (CICs), urging them to address key areas for service improvement.

Rise in Customer Complaints:
- RBI flagged an increase in customer complaints related to credit information.
Six Key Areas of Focus:
- CICs were advised to concentrate on six crucial areas:
  - Data Quality Improvement: Emphasis on enhancing the quality of data.
  - Timely Complaint Resolution: Ensure timely redressal of customer complaints.
  - Internal Ombudsman Framework: Strengthen the internal ombudsman framework.
  - Streamlining Data Correction: Simplify the process for handling data correction requests.
  - Cybersecurity and Data Privacy: Strengthen cybersecurity and data privacy through a robust information security governance framework.
  - Data Usage Concerns: Address concerns arising from the use of data for consulting and analytics.

Overview of Credit Information Companies (CICs)

Functions of CICs:

CICs collect public data, credit transactions, and payment histories of individuals and companies related to loans and credit cards.
They gather data from various sources, including banks, financial institutions, lenders, and credit-granting entities, and compile it into credit reports.

Creditworthiness Assessment:

Banks and non-banking financial institutions refer to CIC reports and scores to assess the creditworthiness of borrowers before granting loans or issuing credit cards.

Regulatory Framework:

CICs in India are regulated and supervised by the Reserve Bank of India (RBI) and governed by the Credit Information Companies Regulation Act, 2005 (CICRA).
As per CICRA, every credit institution, like banks, must be a member of at least one CIC.

Functions of CICs:

Credit Reports: CICs collect and maintain credit-related information from various sources, including banks, financial institutions, and credit card companies. They compile this information into credit reports for individuals and businesses.
Credit Scores: CICs calculate credit scores based on the credit history and financial behavior of individuals. Credit scores provide a numerical representation of creditworthiness.
Risk Assessment: Lenders use credit reports and scores from CICs to assess the credit risk associated with potential borrowers. This information helps in making informed lending decisions.

Major CICs in India:

Credit Information Bureau (India) Limited (CIBIL): One of the leading credit bureaus in India, CIBIL provides credit information reports and scores to individuals and businesses.
Equifax: Equifax is a global credit information company operating in India. It offers credit reports and scores to assist in risk assessment.
Experian: Experian is another major credit information company providing credit reports, scores, and analytics to support lending decisions.
CRIF High Mark: CRIF High Mark is a credit bureau that offers a range of credit information services, including credit reports and analytics.

CIBIL Score:

It is a three-digit numeric summary of an individual’s credit history.
Derived using credit history found in the CIBIL Report, considering the borrower’s credit profile over the last 36 months.
Range: The score ranges from 300 to 900, with higher scores indicating a better credit profile.
Lender Evaluation: Lenders use the CIBIL report and score to assess the risk of lending and decide on loan/credit card applications.
Approval Chances: The closer the CIBIL Score is to 900, the higher the chances of approval for credit card or loan applications.