Satish Mehta is the Managing Director of Credit Information Bureau (India) Limited (CIBIL). He has more than two decades of experience in the housing finance industry. He spent 22 years at Housing Development Finance Corporation Limited (HDFC), progressing through a series of general leadership positions. As Chief (Operations), he was responsible for the entire lending operations of HDFC including product development, systems, process and procedures. In an exclusive interview with Personalfn, Mehta shares his views on the working and future plans of CIBIL and on how individuals stand to benefit from CIBIL's services.
Post-launch, there is some curiosity about CIBIL's scope of operations. Please share with us details of CIBIL's operations with respect to both companies and individuals.
Until today, banks had no way of checking the creditworthiness of retail customers while the scene was a bit better on the corporate lending front since competitor banks, vendors, suppliers helped in understanding the worthiness of the borrower.
Before giving you a prescription for your disease, the doctor normally enquires about your past illness and disease, i.e. your health history.
Similarly, when you visit the banks for loans or credit cards they enquire about your creditworthiness. CIBIL is going to be a facilitator and provide the banks with the credit history of an individual.
The company is owned by State Bank of India, HDFC, Dun & Bradstreet Information Services India Private Limited and Trans Union International Inc.
CIBIL is going to maintain a database of credit history and repayment records of commercial and consumer borrowers. This information would be provided in the form of credit information reports (CIRs) to member banks, financial institutions and other lenders.
They will be able to use it for taking a decision on credit sanction by gaining access to the credit history of a borrower for the previous 36 months.
This report will provide both positive data such as the address of the customer and loan repayment records as well as negative data like penalties and defaults.
How will the bank have access to the data?
For a bank to access the CIBIL database, it can post a query through the Internet or through leased lines. The company will respond in a matter of seconds through the same mode.
The membership fee varies between Rs 1 to 6 lakh (Rs 100,000 to Rs 600,000), depending upon the asset size of a bank.
Can individuals have an access to the Credit Information Reports (CIRs) provided by CIBIL?
CIRs can be accessed only by member banks. They can do so only for taking a valid credit decision, further disclosure to any other person is prohibited.
However, if a member bank has drawn a report on any individual, a copy of the same can be obtained by the individual from the member bank.
How do individuals stand to benefit from the services offered by CIBIL? Do they need to subscribe for your services? Will CIBIL issue ID cards or reports which a loan seeker can file with his/her application?
CIRs are aimed at helping credit grantors make faster and more objective lending decisions. This is going to contribute to a more competitive credit marketplace among the credit grantors.
With a bureau in place, responsible customers can expect faster and more competitive services at better terms from the credit grantors. No, we will not issue any such ID cards or reports.
Will the rates of interest, say, on a home loan or the loan eligibility also depend on the repayment track record of an individual for past liabilities?
At present I cannot comment on this or assure you anything. But as time passes in future when you approach a credit grantor for credit, your application will be evaluated on the basis of your past payment history, credit lines enjoyed along with other factors such as income, security etc.
In this case, a good credit record is one of the best indicators of your basic creditworthiness. A CIR that reflects a good past payment history of the borrower may lead to credit being granted on better terms.
If a borrower has defaulted on a bank loan, others can use this information to take a decision on further credit delivery. This would also make the way for differential pricing. It would help in lowering the cost of a loan. Hence, lenders will be in a position to offer lower price to good borrowers.
Don't you think the passing on of data from the service provider to CIBIL may amount to an invasion of privacy? Some of the information passed on could be of very personal nature. What checks and balances does CIBIL have in place to protect its databases from getting into the wrong hands?
The information we are sharing about the individual is of a general nature there is no personal information being shared. Also we have an understanding between our partners that we are not going to share the information with any outside party.
The information technology perspective is very strong. Only the members will get an access to the database. The question of invasion of privacy does not arise only.
We are able to maintain the privacy standards due to the presence of technology partners, Dun and Bradstreet and TransUnion, who have provided the necessary software.
This software will enable lenders to check credit profiles of borrowers online through a separate terminal provided to them by CIBIL, which would be password protected.
How do you see the lenders (banks and institutions) benefiting from the services you are providing?
The banks would be able to improve their risk management systems. Also this would help the banks reduce their non-performing assets (NPAs) by getting speedier information on customers.
What steps should an individual take to ensure a good credit record?
The first step one should take is to establish a budget to control his spending habits. Also one should consider cutting on the interest and other credit related costs.
Some of your savings should be used to repay some debt, which may save you higher interest costs. Also you should try to pay off a high balance account, or pay off two or three of your smaller balances.
The key to good credit record is to always pay on time.
Click here to get a free guide to financial planning