CIBIL – All about its journey and competitors

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When the Credit Information Bureau of India Limited (CIBIL) was incepted in 2004, it was indeed a revolutionary move in the banking sector. Even though lenders follow an internal credit scoring process, they could not access previous credit history of applicants, who had availed credit cards or unsecured loans from other banks until CIBIL happened.

CIBIL also managed to do away with discrepancies that can occur when the applicant is a customer of more than one bank. For instance, a person with a decent record with one lender may not have the same with other service providers.

As the first and only agency (at the time) to gauge loan or credit card applicants’ creditworthiness and default history, CIBIL soon became a solid pillar of support for lenders and credit card companies as CIBIL scores can help them to avoid major downsides associated with ‘bad’ customers and transactions.

And as many as 13 firms had strived to follow its footsteps. But only three could gain approval from the Reserve Bank of India so far, namely, Equifax Credit Information Services Private Limited, Experian Credit Information Co. of India Private Limited, and High Mark Credit Information Services Private Limited.

What does this mean?

All credit information bureaus function by keeping track of individual credit and default history and dispense credit scores to each bank client. Based on specific credit scores, banks find it easier to decide whether to approve a loan or credit card application. Until 2009, CIBIL was the only agency to do that for the entire country.

Earlier customers had no access to their credit reports. Now they can get one annual report for free. But if you request for more than one report in a year, you will be levied a small fee for the additional service. Monitoring one’s credit performance is beneficial to customers too. They can check with the lender(s) informally if they can apply with a certain CIBIL score because with each formal loan or credit card application, the customer’s credit score can drop (albeit temporarily until it is approved). Imagine the impact of rejected loans on individual credit scores! Knowing one’s CIBIL score can also give applicant the flexibility to bargain for better interest rates with lenders.  

Why we think competition is good and India needs more credit data bureaus?

While CIBIL enjoys the obvious advantage of being the first credit data bureau in India, it doesn’t eradicate the scope or space for more. A study conducted by JPMorgan Chase and Co. has pointed favorably towards the enormous potential of more credit bureaus in the country. It is commendable that the likes of Experian and Equifax could pass the RBI guidelines and make it to the very short list of credit bureaus. Indian Economy Guidelines do not allow more than 49 percentage of overseas investment in a credit bureau. For instance, Equifax could manage that thanks to their tie-ups with Tata Capital Limited and Crisil Limited, which is the Indian branch of Standard and Poor (an international rating agency). Yet, India’s credit rating and scoring system is considered to be at an embryonic phase even today for a country of such vast and diverse demography. And yes, there is room for more.

What do you think?

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