The next time you delay that phone or electricity bill payment, there is a chance it could end up denting your overall credit worthiness. The Reserve Bank of India has backed a proposal by Credit Information Bureau (India) Ltd or Cibil, which maintains the country’s largest database of borrowers, to utilise people’s payment history on electricity and fixed-line telephone bills to help banks assess their creditworthiness.
With the RBI’s concurrence, the plan to dramatically widen the database used to tabulate the creditworthiness of people is now expected to be taken up with multiple sectoral regulators, including telecom regulator Trai and power regulator CERC.
“We, in consultation with various stakeholders, are examining the feasibility of incorporating alternative data sources — electric and telecom data of consumers — within the purview of credit information,” a senior RBI official said. A CERC official added they had been informally sounded out on the proposal and that concurrence of state regulators might be required to issue directives to power utilities.
Pointing out that utility data was used to assess creditworthiness in other countries as well, a senior Cibil executive said this could help in financial inclusion as people who paid bills on time were more likely to be financially disciplined. Hence banks could offer them a savings account initially and then a loan in the future.
According to an estimate made by Ficci, BCG and the Indian Banks’ Association in their paper on Digital Banking, the introduction of periodic utility bill payments (electricity, telecom) and periodic insurance premium payments information into information bureau records would increase the bureau coverage from current 20 per cent to almost 70 per cent and would be a major boost to credit eligibility of low-ticket borrowers who are largely self-employed or in the unorganised sector.
The RBI’s justification for the use of electric and telecom data in the database of credit information companies is four-pronged. One, that positive data from telecom firms and electric utilities would especially help assess creditworthiness of small and medium borrowers in rural, hilly and tribal areas who currently do not have access to banking credit, thereby extending the penetration of banking in India. Two, alternative data also improves the performance of analytical models, that helps lenders better predict the ‘ability to pay’ as a means of guarding against consumer over-indebtedness.
Globally, electric utilities and telecom firms that report payment records to credit bureaus have evidenced improved consumer payment behaviour with regard to their bills. This would also help widen the database of credit information agencies on individuals for the purpose of ‘Know Your Customers’ verification by financial institutions.
However, getting a wider consensus on gathering data from power and telecom utilities is expected to be a challenge because the Credit Information Companies (Regulation) Act, 2005, under which Cibil operates, was drafted keeping in mind only data-sharing with banks and not with other companies. Also, Trai norms forbid firms from sharing customer phone numbers and other details.