Why RBI penalised credit info companies and what borrowers should do now

The central bank slapped a monetary penalty of Rs 26 lakh on TransUnion CIBIL Ltd, Rs 24.75 lakh on Experian Credit Information Company of India Pvt Ltd, Rs 24.25 lakh on Equifax Credit Information Services and Rs 25.75 lakh on CRIF High Mark Credit Information Services for non-compliance with certain provisions of the act and rules governing credit information companies.

The RBI conducted statutory inspection of these four companies for the financial position as on March 31, 2021 and examination of the inspection report, supervisory letter and all related correspondence pertaining to the same revealed that certain data relating to the credit information, especially updating credit information, maintained by the companies was not accurate and complete.

The RBI issued notices to these companies advising it to show cause as to why penalty should not be imposed for its failure to comply with the provisions of the CIC (R) Act read with CIC Rules. The RBI came to the conclusion that the charge of non-compliance with various provisions were substantiated and warranted imposition of monetary penalty on the company, it said.

What are the complaints of customers?

The RBI had received many complaints from customers about CICs not updating the status of borrowers. Many customers had complained that when they rectify a default issue or point out a wrong classification, CICs failed to act within the stipulated timeframe.

As a result, many customers were unable to get loans or credit cards as banks access the database of CICs and the rating given by them while taking decisions on loan and card sanctions. If a credit card holder defaults on a credit card or loan instalment, it’s immediately notified to the CICs. However, CICs have failed to reclassify them when they rectified the payments.

The RBI said these companies had neither updated the credit information relating to them nor informed them regarding the steps taken by it for correction of discrepancies and also the reasons for its inability to comply with the timeframe for providing correct information, within 30 days of receipt of such complaints.

What are credit information bureaus?

They maintain credit information of borrowers (including individuals, corporate, SMEs) which can be accessed by banks and other lending institutions. They collect information from a variety of credit providers including banks, credit card companies and non-bank financial institutions. They rate the borrowers in a scale of 300-900 with 900 being the highest rating. Banks and finance companies normally take decision on the rating given by the credit bureaus.

If the borrower has a rating of over 800, he has a good chance to get a loan or credit card easily and at a lower interest rate. If a borrower defaults, his rating will come down. When the rating declines below 500, chances of getting low interest rates and even loans or cards also decline accordingly.

They levy charges on enquiries even if they have no data on the entity. Banks mandate the usage of credit information report (CIR) in their credit appraisal process. CICs and banks are supposed to keep the credit information collected/ maintained by them, updated regularly on a monthly basis or at such shorter intervals as may be mutually agreed upon between the banks and the CICs.

What’s in their database?

CICs have details about all the creditors and borrowers in the financial system. This means they are monitoring credit outstanding of Rs 140 lakh crore in the banking system. CICs also capture the names of directors, guarantors and partners involved in the loans.

There were 34,304 suit-filed accounts – where banks filed cases against borrowers for loan defaults – involving Rs 934,882 crore as of December 2022, according to TransUnion Cibil data. Also, there were 16,185 wilful defaulters involving Rs 347,424 crore as of December 2022, Cibil data shows.

What should borrowers watch out for?

When borrowers default on repayment and subsequently make the repayment, they should approach the CIC after a month to seek the status. If they are still classified as defaulters and rating is down, they should take up the issue with the CIC for rectification. Borrowers are in the dark about their credit rating and credit status unless they seek a report from CICs. Unlike banks, they don’t have direct access to CICs’ database.