Reserve Bank of India (RBI) deputy governor Viral Acharya said on Monday there is financial under-penetration in India with the credit-to-gross domestic product (GDP) ratio at 55.7%.
Reserve Bank of India (RBI) deputy governor Viral Acharya said on Monday there is financial under-penetration in India with the credit-to-gross domestic product (GDP) ratio at 55.7%. This compares with China’s 208.7% as per 2017’s fourth quarter (Q4) data. In order to democratise and formalise credit in India, Acharya said a public credit registry (PCR) was needed. The PCR’s primary aim is to be a single data repository that has an extensive database of credit information, for all credit products covering all lender-borrower accounts without a size threshold in the country – from the point of origination of credit to its termination encompassing details of their repayments, restructuring, default, resolution and the like.
Speaking at an event jointly organised by the Federation of Indian Chambers of Commerce and Industry (Ficci) and Indian Banks’ Association (IBA), FIBAC 2018, the deputy governor said, currently, this information is not available under a single domain. It was previously recommended that the RBI should setup the PCR in a phased and modular manner. This comes after the mounting troubles of non-performing assets (NPAs) in the past fives years or so. With a PCR, trusted data will be made available after which banks and other lenders will be able to take better credit decisions. It can help them recognize early warning signs of asset quality problems by being able to see the performance on other credits and help decide if a borrower is worthy of their credit or not.
The lending institutions will be mandated by law to share borrower information. Like many other countries, PCR in India will be backed by a PCR Act. The introduction of PCRs and private bureaus has been found to raise the ratio of private credit to GDP in many countries by 7 to 8 percentage points over a five-year horizon. “The lender can get a 360 degree view of the borrower’s other outstanding credits and past performance, allowing better screening at time of credit origination and superior monitoring during the life of the credit,” Acharya said in his speech.
In a push to make credit available to the smallest of borrowers, Acharya believes that the Goods and Services Tax Network (GSTN) in tandem with the PCR will help take this step forward. “We want that even a small tea shop vendor should be able to take a `500-loan at fair rates, say, for only a week, based on such data,” Acharya said. This comes after the deputy governor observed that there has been a voluntary increase in the number of GST registrants and hence providing a wider database of credit information. “Small B2C firms want to be part of the GSTN because they buy from large enterprises. In fact, 68% of their purchases are from medium or large registered enterprises, giving them a powerful incentive to register, so they could secure input tax credits on these purchases,” Acharya added.