Know Your Creditworthiness

Borrowers, insurance companies, phone companies and even individuals can approach a credit information company CIC and get detailed credit information on the target company/individual

Borrowers, insurance companies, phone companies and even individuals can approach a credit information company CIC and get detailed credit information on the target company/individual.

What

The Credit Information Companies Regulation Act, 2005, was passed in May 2005 with a view to regulating credit information companies CICs and facilitating efficient distribution of credit. The Reserve Bank of India was empowered to make the regulations, with the aim of achieving more credit penetration without raising defaults. Recently, RBI prepared the draft rule book.

Why

The RBI has allowed bank customers to have access to their credit history maintained by credit information companies. Good borrowers can now get credit without paying a risk premium. Earlier, in the absence of a comprehensive credit information system, even defaulters were able to get fresh credit 8212; without paying a higher risk premium 8212; by switching to a different lender. Now defaulters will find it tough to take banks for a ride

Who

CICs will provide individual credit information to consumers/companies you can8217;t get information about your colleague/competitor. These CICs will also give credit reports on companies to banks, insurance firms and so on. As well as data management services 8212; real estate, investments and so on 8212; to these entities. The regulations indicate which companies can obtain credit information. Apart from banks, insurance companies, cellular/phone companies, rating agencies, brokers, trading members, Sebi and IRDA are covered under the Act.

How

The borrowers will have to pay a nominal fee of Rs 100 to a CIC to get the details. The RBI has put the maximum fee that a credit information company can charge from its specified users at Rs 500 for information on individual borrowers and Rs 5,000 for non-individual borrowers. It has set a limit of Rs 15 lakh membership fee for institutions seeking registration with credit information firms.

What Next

The RBI will announce the final norms soon. A section of India Inc is worried about the possible misuse of the CIC system by vested interests. They want all the loopholes in the CIC system to be plugged before the final norms are announced.