RBI Governor: Credit Institutions To Report Their Borrower’s Credit Information To Credit Information Companies

To enhance the transparency and accuracy of credit information, the Reserve Bank of India (RBI) has announced a shift in the reporting frequency of credit information, according to the RBI Monetary Policy Meeting (MPC) held on August 8. In the RBI MPC meeting, Shaktikanta Das, RBI governor, said that the committee has decided to increase the frequency with which credit institutions (CIs) report their borrower’s credit information to credit information companies (CICs). Earlier, this reporting was done every month. However, with the new policy, this would now be changed fortnightly, or at even shorter intervals, as mutually decided between the CI and CIC.

“At present credit institutions (CIs) are required to report the credit information of their borrowers to credit information companies (CICs) at monthly or such shorter intervals as mutually agreed between the CI and CIC. To provide a more up-to-date picture of a borrower’s indebtedness, it has been decided to increase the frequency of reporting of credit information to CICs from monthly intervals to fortnightly basis or at such shorter intervals as mutually agreed between the CI and CIC. The fortnightly reporting frequency would ensure that credit information reports provided by CICs reflect more recent information,” according to RBI MPC statement on developmental and regulatory policies.

This move aims to provide a more up-to-date picture of a borrower’s indebtedness. Monthly updates can lag, leaving both borrowers and lenders with dated information that may not accurately reflect the current credit scenario. Credit information reports (CIRs) will offer a more current view of an individual's credit health, by increasing the frequency to every two weeks. This change is expected to benefit both borrowers and lenders in different ways.

Benefits Of Borrowers: The borrowers can benefit significantly from a faster update of their credit information. For example, once a borrower makes a prepayment or repays a loan, this information will be instantly reflected in their credit report much sooner than before. This is important for those who are working diligently to improve their credit scores, as they will soon see the positive impact of their actions more quickly. Moreover, this is especially beneficial for people who are in the process of securing new loans or credit, as their credit reports will reflect the most recent and accurate information, potentially improving their chances of approval.

Says Adhil Shetty, CEO, BankBazaar, a fintech portal: “The credit score is not a stationary number that is computed every month or every year. Each time a request is made for your credit score or credit report, it gets computed dynamically at the time the request is made based on the data available at that point in time. More frequent reports to the CIC means there’s faster updation of information, which is good for both, the consumer, as well as the lender. Borrowers will get to see the change in the status of their loans much sooner, which is very important when you make a prepayment or close your loan. Lenders will be able to make better risk assessments of borrowers and reduce the risk of over-leveraging by borrowers.”

Benefits Of Lenders: This is set to benefit the lenders, as for them, more frequent updates mean an increase in risk assessment capabilities. Thanks to up-to-date information, lenders can now make more informed choices when evaluating loan applications. This helps in the quicker identification of potential risks and avoiding the over-leveraging of borrowers, thereby lessening the chances of defaults and bad loans. Also, lenders can respond quickly to changes in a borrower’s credit behaviour, which in turn would lead to better management of their credit portfolio.

“This will be beneficial to both borrowers and lenders (CIs). Borrowers will have the benefit of faster updation of information, especially when they have repaid the loans. Lenders will be able to make better risk assessments of borrowers and also reduce the risk of over-leveraging by borrowers. Necessary instructions will be issued shortly,” according to RBI MPC statement on regulatory and developmental policies,

The RBI has said that the required instructions for this new reporting system will be issued shortly. As this policy comes into effect, both borrowers and lenders stand to benefit from a smoother and more responsive credit reporting system.