With over 570 members, including banks, financial institutions and non-banking financial companies, Credit Information Bureau India (Cibil) provides data on borrowers to various lending institutions. In an interview to FE's Kumud Das, the agency's managing director, Arun Thukral, says credit information enables lenders to extend credit to many additional customers at lower costs. Edited excerpts:
How do borrowers and lenders use information from a credit bureau and how does it serve their purpose?
In today’s scenario, both borrowers and lenders are aware of the functioning of a credit bureau and the benefits associated with it. The increased usage of Cibil credit information reports and Cibil TransUnion Scores by credit grantors during loan disbursement has showcased a growing trend. Credit grantors are experiencing benefits associated with the usage of Cibil score for reliable credit decisions and individuals are approaching us before they apply for credit to know their credit standing, which will help them improve their credit history and avail credit on better terms. We encourages consumers to maintain greater self discipline in meeting financial commitments by allowing them to build reputational collateral through appropriate repayment behaviour.
How would a lender set the price if there is no objective credit information of the borrower?
Without objective credit information, lenders set prices according to average risk levels or use subjective, less precise methods of evaluation. This results in products that are excessively expensive for low-risk consumers and unfairly inexpensive for high-risk consumers. By making the costs of extending credit lower, credit information enables lenders to extend credit to many additional customers, and at overall lower costs. Implementation of this information network fuels business growth while boosting credit penetration and macro financial development.
Do you think credit bureaus are now more bank-centric and less customer-centric?
Cibil creates a transparent and information-centric environment for lending. It caters to both the financial lending institutions and the borrowers (individuals). Previously, lenders would treat all loan seekers equally.
Each applicant, if approved by the lender’s internal credit policy, would get charged the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all borrowers, in order to compensate for the possible default of a small portion of the loans disbursed.
How should a borrower get the credit information report?
Cibil's credit information report (CIR) and scores provide lenders the ability to differentiate between those who have honoured their obligations responsibly and those who have defaulted. Hence,