Credit information bureaus are going to become more important. First, there are now more of them, three new ones are being added to the earlier single bureau. Secondly, after the financial turmoil of the past two years accompanied by sharply rising retail loan defaults, lenders are increasingly seeking to hold the hands of the bureaus in rebuilding portfolios while walking up the slope of another recovery. Thirdly, the bureaus’ remit is extending to a massive new area as microfinance institutions (MFIs) try to tackle the twin problems of multiple borrowing and calculated default with their help. Thus, since increasingly a large number of customers of industries ranging from consumer durables to housing will be affected by the working of the bureaus, it is in the interest of both business and the lay public that they run well. Against this need, the performance record so far has been distinctly patchy. Anecdotal stories abound of how loans repaid still show up as current and, what is worse, borrowers who have been able to restructure their loans and pay them off are still shown as defaulters.
This has been so for several reasons. A nascent service with a single operator needs time to get its act together, something that is aided by the process of complaint redressal itself. But more important is the fact that a lender who has passed on information in bulk to a bureau has no incentive to make sure that it is correct. After all, it costs money to clean up the data and make it up-to-date. Second, and this is more serious, what do you do when there is a dispute between the borrower and the lender? It is understandable that a disputed loan will show as a default, but what if a loan closed after a negotiated settlement still officially shows in the lender’s books as outstanding. The only relief for the customer till now is that she can pay a fee and see her own credit record after which she at least knows where she stands. The bureaus say that they can show a customer what pertains to her but cannot change the data as that can only be done by the data supplier. On finding an inaccuracy, the only thing borrowers can do, and have been doing, is to take all the papers to a new lender and try and convince him that there is no earlier default.
There is every need to maintain information depositories of defaulters and assets pledged. It should not be possible for more than one bank to lend against the same car or plot of land unknowingly, and a fraudulent person should not be able to carry on his craft by taking advantage of information gaps among lenders. For its part, the Reserve Bank of India should devise and put in place a method of quick complaint redressal and dispute settlement. Some kind of an ombudsman may be in order, though care must be taken not to let cumbersome procedures grow and delay disposal. That is already the bane of the Indian judicial process.
