Public Credit Registry: Unlocking Opportunities and Managing Risks

A public credit registry can be a game-changer for individuals and businesses alike, providing a transparent and accessible way to manage credit information.

With a public credit registry, individuals can access their credit reports and scores, enabling them to monitor and manage their credit health more effectively. This can lead to better financial decision-making and improved creditworthiness.

A public credit registry can also help businesses make more informed lending decisions, reducing the risk of defaults and improving the overall efficiency of the credit process. By having access to a comprehensive and up-to-date credit database, lenders can assess creditworthiness more accurately.

By unlocking opportunities and managing risks, a public credit registry can promote financial inclusion and stability, ultimately contributing to a stronger and more resilient economy.

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The Public Credit Registry (PCR) is a digital registry of authenticated granular credit information. It's designed to provide a comprehensive and accurate picture of a borrower's creditworthiness.

PCR will work as a financial information infrastructure, offering access to various stakeholders. This means that banks and financial institutions can get a 360-degree view of borrowers on a real-time basis.

The registry will capture all details of borrowers, including wilful defaulters and pending legal suits. This will help prevent financial delinquencies and ensure that lenders are making informed decisions.

PCR will also include data from entities like market regulator SEBI, Corporate Affairs Ministry, Goods and Service Tax Network (GSTN), and Insolvency and Board of India (IBBI). This will provide a more complete picture of a borrower's financial situation.

Here are some key features of the PCR:

In June 2018, the RBI announced plans to set up a Public Credit Registry (PCR) for India. This decision was based on the recommendations of the High-level Task Force, also known as the Y.M. Deosthalee committee.

The RBI had constituted this committee to review the current credit information systems in India. At present, there are multiple granular credit information repositories in India, each with distinct objectives and coverage.

Here are the four privately owned credit information companies (CICs) that operate in India:

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In June 2018, the RBI announced its plan to set up a Public Credit Registry (PCR) for India.

This decision was based on the recommendations of the High-Level Task Force, also known as the Y.M. Deosthalee committee, which was constituted by RBI to review the current credit information system in India.

At present, there are multiple granular credit information repositories in India, each with distinct objectives and coverage.

Each of these repositories has its own unique focus, and it can be confusing to keep track of them all.

Within RBI, the CRILC is a borrower-level supervisory dataset with an aggregate exposure of Rs 5 crore, which is a significant amount of credit information.

There are four privately owned credit information companies (CICs) operating in India, which are mandated by RBI to collect credit information from all regulated entities.

Here's a list of the four CICs:

RBI has mandated all its regulated entities to submit credit information individually to all four CICs, which helps to create a comprehensive database of credit information in India.

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The existing system of credit data collection in India has several problems. There are currently 4 Private Credit Bureaus (PCBs) in India that collect credit-related information from banks and assign credit ratings to borrowers.

These private repositories collect credit information from banks across the country, but their data only covers 63% of the adult population in India. This means that 37% of adults in India are not included in the credit data collection.

The focus of these private repositories is on large and registered borrowers, such as big companies. This is because they have more reliable data available for these types of borrowers.

Here are the three major problems with the existing system of credit data collection:

The proposed public credit registry aims to capture all loan information, making it easily accessible to borrowers who can view their own history. This comprehensive approach will help individuals keep track of their financial transactions.

Data will be shared with stakeholders, such as banks, on a need-to-know basis, ensuring that sensitive information is protected. This controlled access will prevent unauthorized parties from accessing personal data.

Data privacy will be a top priority, with measures in place to safeguard sensitive information.

The panel has proposed that the registry capture all loan information, making it a comprehensive database.

This means that borrowers will be able to access their own history, which can be a huge help in keeping track of their financial situation.

Data will be made available to stakeholders like banks, but only on a need-to-know basis, ensuring that sensitive information remains protected.

The committee has also emphasized the importance of data privacy, reassuring that it will be safeguarded.

Comments on the proposals will need to be in English, written in full sentences, and free of abusive or personal language.

The 5Cs of credit are a set of questions that banks ask borrowers before extending a loan. These questions help assess the borrower's creditworthiness.

To be a sceptical banker, you'd ask about the borrower's need for the loan and how long they need it. This is the condition.

You'd also want to know how much of their own money the borrower has put into the business, which is the capital.

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Another important question is what collateral the borrower can offer against the loan.

The borrower's character is also crucial, so you'd ask if they already have any loans from anyone and if they've repaid them on time.

Lastly, you'd want to know if the borrower can repay the loan amount, or if it would be too big for them, which is their capacity.

Here are the 5Cs of credit in a concise list:

The Public Credit Registry (PCR) is a game-changer for small and unregistered borrowers/MSMEs who can now access formal credit despite lacking prior recorded credit history. With PCR, they can provide alternate credit data such as GST, Income Tax, and Utility Bill payments.

PCR reduces the gap of asymmetric information, making the credit market more efficient by reducing interest rates for good borrowers and increasing interest rates for bad ones. This leads to faster disbursement of loans without delays.

Small borrowers can easily get small ticket size loans with reduced bank time and cost in credit analysis for servicing each loan. The verified information available in a single platform makes this possible.

PCR also benefits banks by providing early warnings of default by the borrower, enabling them to be more cautious while sanctioning further loans. This reduces the risk of cases like Vijaya Mallaya or Nirav Modi.

With PCR, banks have access to verified and authentic data from all public databases of people at a single platform, reducing the multiple reporting burden on credit institutions.

Here are some key benefits of PCR for the economy:

MSMEs are the backbone of our economy, contributing around 29.7% of GDP and 49.66% of Indian exports.

They create employment for about 11.1 crore people, which is second only to the agricultural sector.

Only 16% of MSMEs in India receive formal credit, leaving 84% under-financed or financed through informal sources.

The World Bank estimates the current credit gap for MSMEs in India to be at $380 billion (Rs.28,50,000 crores).

The Public Credit Registry (PCR) aims to solve the problems faced by MSMEs, which currently rely on informal credit markets with interest rates as high as 40% per annum.

PCR will act as a common database for all credit information, eliminating the need for private repositories and providing a 360-degree view of the borrower's profile.

This will include tracking every little "business purchase" and recording every penny that isn't repaid on time, creating a credit-surveillance system like never before.

The proposed report will have over 100 fields of information about every borrower, submitted by banks.

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A public credit registry can drive innovation in lending by providing access to credit information, including debt details and repayment history. This information can help lenders make more informed decisions, increasing credit availability to micro, small and medium enterprises.

With a public credit registry, lenders can focus on more than just large companies, giving smaller businesses a better chance at getting loans. This can lead to a more inclusive financial system.

The registry can help deepen financial markets by providing a more comprehensive view of borrowers' creditworthiness. This can lead to more efficient allocation of credit and a more stable financial system.

By making credit information more accessible, a public credit registry can support the policy of financial inclusion. This means that more people and businesses can access credit, promoting economic growth and development.

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