Concerns raised by RBI over Credit Information Companies (CICs)

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.