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The Reserve Bank's decision to explore possibilities of setting up a credit information bureau is sorely a needed step. Stories abound of banks being duped by borrowers who already have histories of defaults with other banks and financial institutions. In fact, information gathering is so poor that defaulting borrowers at one branch of a bank have sometimes been granted credit by another branch of the same bank. Recent reports suggest that public sector banks face mounting bad debts from their credit card business.
With almost all banks getting into lucrative retail lending business, maintaining credit profiles of prospective clients would be a big help. The credit information bureau would therefore need to collect and collate two types of information--one on businesses, and another on individuals. While information about corporate clients is often available, and details of charges created by these firms can be ascertained from registrar of companies, no such records exist for no-corporate entities. Thissometimes results in several banks funding the same business on the same security. It is for the smaller businesses, therefore, that the need for additional information is greatest.
But at the same time, credit information bureau should not be inundated with so much data that it becomes unmanageable. A cut-off limit, say Rs 1 lakh, should accordingly be put in place, so that loans to marginal farmers, for example, are left out of its scope. And it is not merely the names of businesses which should be recorded, but names of partners/directors etc, so that the same people do not change names of their firms and obtain fresh credit. The sooner the working group submits its report, the faster can banks plug the information gap, which is one root cause of NPAs.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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