Noose tightens for defaulters

Habitual credit card defaulters and concurrent home loan borrowers beware.

Credit grantors "" banks, housing finance companies, non-banking finance companies and credit card companies "" are all set to tighten the noose around retail loan defaulters.

Come April, these financial intermediaries will begin exchanging credit information for the first time ever under the aegis of the Credit Information Bureau (India) Ltd.

The bureau aims to mitigate the perennial fear of bankers that their credit decisions might go awry.

All that a member-bank will need to do is to run a background check with the bureau on past financial transactions and creditworthiness of prospective borrowers before processing their loan applications.

"The bureau will be a repository of both positive as well as negative credit information. Credit grantors can get reports on prospective borrowers from us to overcome the problem of serial defaults and concurrent borrowings," Satish Mehta, managing director, Cibil, said.

Exchange of credit information will be based purely on the principle reciprocity. Just becoming a member of the bureau doesn't entitle the credit grantor to source credit information.

The credit grantor has to feed credit information to the bureau at regular intervals. Past credit history is a fair indicator of a borrower's future credit behaviour.

So, if a borrower has a good credit track record, a credit grantor could extend benefits like finer interest rates. Else, the creditor will do well to avoid the borrower and save itself being saddled with a non-performing asset.

"Beginning April, credit information assimilation/ dissemination will be in respect of consumer/ retail loans. Once the system pertaining to exchange of credit information on small loans stabilises, the bureau will take up credit information exchange relating to corporate and SME loans," Mehta said.

Currently, over 80 credit grantors in India, accounting for nearly 90 per cent of loans disbursed by the formal financial system, have become members of the bureau.

Mehta feels that at Rs 10 per report, the price is too small to pay to avoid sticky assets. Indications are that the price could go up to Rs 17 per report as the bureau's database as well as the number of reports generated grows manifold.

Cibil is a four way joint venture between the State Bank of India (40 per cent stake), HDFC (40 per cent), Dun & Bradstreet Information Services (India) Pvt. Ltd (10 per cent) and Trans Union International Inc (10 per cent). It has an authorised capital of Rs 50 crore and a paid up capital of Rs 25 crore.

CIBIL is already maintaining the database of suit-filed accounts of Rs one crore and above and suit-filed accounts (wilful defaulters) of Rs 25 lakh and above.

The central bank has instructed all credit grantors that as a prudential requirement, they must incorporate a 'consent clause' in all the loan documents, thus enabling them to share this data with the bureau.