RBI Deputy Guv Viral Acharya suggests setting up public credit database

Reserve Bank of India (RBI) Deputy Governor Viral Acharya wants the central bank to set up a public credit registry (PCR), an extensive database of credit information for India that is accessible to all stakeholders, to improve the credit culture of the country.

Such a registry is managed by a public authority such as the central bank or the banking supervisor, and reporting of loan details to the PCR by lenders and/or borrowers is mandated by law. The idea is to capture all relevant information in one large database on the borrower, in particular, the borrower’s entire set of borrowing contracts and outcomes, Acharya said.

According to the deputy governor, a PCR will help in credit assessment and pricing by banks, risk-based, dynamic and countercyclical provisioning at banks, supervision and early intervention by regulators and would aid in understanding “if transmission of monetary policy is working, and if not, where are the bottlenecks”. Also, the registry can be used to restructure stressed loans effectively.

“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,” Acharya said in his speech at the Statistics Day Conference at the RBI headquarters on Tuesday. The central bank uploaded the speech on its website on Thursday.

The deputy governor in charge of monetary policy said a central repository would capture and certify the details of collaterals; this can enable the writing of contracts that prevent over-pledging of collateral by a borrower.

“Furthermore, absent a public credit registry, the ‘good’ borrowers are disadvantaged in not being able to distinguish themselves from the rest in opaque credit markets; they could potentially be subjected to a rent being extracted from their existing lenders who enjoy an information monopoly over them.”

“The lenders may also end up picking up fresh clients who have a history of delinquency that is unknown to all lenders and this way face greater overall credit risk,” Acharya said.

Currently, India has private credit bureaus, mainly used for retail loans. The central bank has also set up the Central Repository of Information on Large Credits (CRILC) in 2014-15, where lenders report their large loans — Rs 5 crore and above. According to Acharya, the database covers around 60 per cent of the loan portfolio and around 80 per cent of the non-performing loans of banks. However, it is designed entirely for supervisory purposes. The database also captures limited detail about the borrowers such as the industry to which they belong and their external and internal ratings. The information is not shared with the credit bureaus or researchers.

Other databases available with the central bank are also insufficient to give a full view to the lenders, but the databases can be connected with each other, along with the database maintained by ministry of corporate affairs to get a better picture.