The Reserve Bank of India (RBI) has asked banks to develop a unique system of customer identification across the banking system. This could be accessed by all banks while vetting loan proposals. The move follows concern on the multiple lending model, one in which a customer can avail of loans from multiple lenders. Limited knowledge on borrowers’ credit histories has been a challenge for banks.
At a seminar organised by the Credit Information Bureau on Wednesday, RBI deputy governor Anand Sinha said, “Unique customer identification in the banking system is of paramount importance. While some banks have started the unique customer identification process, this is not present across the banking system, that is, on a shared database. This could enable borrowers to circumvent guideline risk profiles and obtain multiple facilities from banks.”
Though RBI had asked banks to share information with each other and obtain declarations from borrowers about all loan facilities availed of by them, this was not followed.
The central bank feels the unique identification should eventually graduate to a legal entity. Sinha said the central bank’s financial stability board had backed the idea and the G-20 also favoured it. He added issuances of Aadhaar numbers provided hope on this.
RBI said it expected banks to use credit bureau information not just for retail borrowers, but for corporate houses as well. “Commercial banks are increasingly using information from the credit bureau to extend more loans to retail investors than to companies. The impression we had sometime back was this was used actively for retail, not so much for corporates,” Anand Sinha said.
M V Nair, chairman and managing director of Union Bank of India and chairman of Cibil, said loan sanctions by banks using information from the credit information bureau had doubled in three years. “For customer loans, about 45 per cent of decisions were made on the basis on credit bureau data in 2008. In 2011, the proportion has gone up to 88 per cent. Generally, banks extend loans if the credit score of an individual is above 800,” he said.
“The data should be furnished timely and accurately,” he told credit information companies. He expressed hope that banks would do a better balancing act. “Now, there are three more credit information companies. I am sure the situation would definitely improve.”