In a recent statement by Reserve Bank of India (RBI) deputy governor Viral Acharya, it was suggested that a new law should be enacted to align the currently under-construction public credit registry (PCR) with the RBI.
Understanding the Public Credit Registry
A PCR is a comprehensive database of borrowers’ credit information accessible to all lending institutions and credit decision-making bodies. Typically, the registry is overseen by a central bank, and lenders or borrowers are legally required to report their loan details to it. In 2017, led by Y.M. Deosthalee, a high-level task force recommended implementing a phased PCR setup by the RBI.
Current Storage of Credit Data in India
India currently has several entities storing credit data, including four private Credit Information Companies (CICs); TransUnion CIBIL, Equifax, Experian, and CRIF High Mark. Within the RBI, there are also entities like the Central Repository of Information on Large Credits and the Basic Statistical Return-1, responsible for recording substantial loans and credit across sectors.
Challenges in the Current Scenario
The current system faces several challenges. The stored data is fragmented across different entities, depending on self-disclosure from the borrower, has time lags and discrepancies, and imposes extra reporting burdens on credit institutions. The fragmented credit reporting results in inefficiencies, like uniform interest rates, increased credit risks, and limited credit supply, particularly to SMEs due to insufficient credit history.
Public Credit Registry’s Benefits
A PCR can help distinguish between good and bad borrowers, providing a 360-degree view of a borrower and enabling better screening and monitoring processes. By addressing information asymmetry, it can improve credit access, reinforce credit culture, and significantly tackle the issue of non-performing loans. The PCR can play a pivotal role in improving India’s rankings in the World Bank’s ease of doing business index.
Legal Challenges for Public Credit Registry
Setting up a PCR requires the amendment of various legislations. Although initially being constructed within the existing RBI infrastructure, the PCR might be challenging to classify as a ‘financial institution’, taking it out of the Reserve Bank of India Act, 1934. As a “consent-based architecture”, it would require consent from various sources to share data, necessitating specific legislative amendments.
The Way Forward
One potential solution is amending the Reserve Bank of India Act, 1934, to allow the RBI to manage the PCR. The PCR’s objective – gathering data (including credit information) from regulated entities – is an integral part of the RBI’s regulatory functions. Therefore, this could be handled by establishing a subsidiary or department. Linking the PCR with other databases could also reduce information asymmetry and support better decision-making by banks and financial institutions. Integrating the Corporate Identification Number and GSTN with PCR could provide a more robust data aggregation about borrowers.