Have you heard of Credit Bureau and wonder what is a Credit Bureau? If yes, read on. In the next 7 mins you will know all you need to, about Credit Bureaus.

Credit Bureau in IndiaLenders (both formal and informal) have since times immemorial understood the importance of borrower behaviour (on old and existing loans) in evaluating new loan applications. Even your parents gave you relaxation in rules based on whether you honoured your previous promise.

There were mechanisms of informal sharing of information about the borrower between the lenders - bilateral or multilateral exchange of customer behaviour information. There were rudimentary formal mechanisms like Mastercard Negative File also in use.

The challenges with these informal data sharing were manifold:

  • Limited information about the customer was shared mainly default information and that too severe and continuing defaults only were shared.
  • Information sharing was totally voluntary
  • Did not ensure level playing field for all lenders especially those who could not participate in bilateral / multilateral agreements
  • Information was usually updated only once when the default happened, there was no follow-up data sharing about the customer's default
  • No information shared about the overall debt that the customer has availed

With the expected increase in lending to retail customers, increasing importance of bank lending to the economy and the stress seen in the bank's loan portfolios in late 1990s, it was realised that there needs to be a formal mechanism to share borrower behaviour between lenders.

CIBIL is the name of the first credit bureau set up in India. It stands for Credit Information Bureau of India Limited. CIBIL was set up in the year 2000, though its adoption and growth started in real earnest once the CICRA came into force.

Credit Bureaus in India are credit information companies whose objective is to collate information about borrower behaviour and share it amongst lenders like banks, NBFCs etc. Credit information companies are governed by CICRA (Credit Information Companies (Regulation) Act) which was passed in June 2005. RBI issued the regulations under this act in Dec 2006. As a result of the enabling provisions of CICRA, more licenses have been granted to set up credit bureaus.

Apart from CIBIL, there are 3 more credit bureaus active in India - Equifax, Experian and CRIF-High Mark

   28 Jan 2016     Tags - |   Credit Score  |   Credit Report  |   Credit Bureau 

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