What is Public Credit Registry? How can it help banks and you?

For big firms, that have income tax return records, a public history of financial statements and so on, getting loans from banks is a routine affair. But for most smaller entrepreneurs, lack of transparency and credit history, getting loans from the formal system is no easy task. Banks often end up charging such customers a much higher rate of interest on loans than they would charge others, simply for the higher risk they carry. All this boils down to opaqueness of information. If banks could clearly access data that showed what assets a new borrower has, what his part track record of payment has been and how indebted he already is, pushing credit to micro and small enterprises would not be as hard. This is where a Public Credit Registry could be a game changer. But first...

A Public Credit Registry (PCR) is an information repository where all information about existing as well as new borrowers is stored. This includes both corporate as well as retail borrowers. The idea is to capture all relevant information in a single large database on both the outstanding loans and repayment history of an entity/corporate/individual.

The registry captures data on loans taken from all kinds of sources including from banks, NBFCs, corporate bonds, External Commercial Borrowing, Inter-Corporate Lending, Masala Bonds, etc. It also includes ancillary information like any overdue utility payments, or tax payments data from tax authorities, and other primary information sources.

The proposed PCR will include data from entities like Securities and Exchange Board of India, Corporate Affairs Ministry, Goods and Service Tax Network (GSTN) and the Insolvency and Bankruptcy Board of India (IBBI) to enable banks and financial institutions to get a 360-degree profile of the existing as well as prospective borrowers on a real-time basis.

Lack of information, or information asymmetry (where one party has more information than the other) is the key challenge faced by lenders while giving out loans. If banks know that Person A is a good borrower, and has not delayed repayment commitments in the past, has a source of income with which to repay the loan, then perhaps the bank could charge him a lower rate of interest. Usually, the higher the risk of giving a loan and not getting it back, the higher is the interest charged by lenders. A PCR aims to reduce this asymmetry of information by giving the lender a 360 degree view of the prospective borrower’s credit history.

But this is not where the utility of PCR stops. As a borrower builds credit history, the lender would want to protect that information especially for profitable borrowers and may not be willing to share it with other lenders. This would mean that the borrower would get tied to a particular lender and may not be able to move away if, for instance, the lender faces its own problems. A PCR can enable that the borrower’s credit history is accessible to all lenders in a more transparent manner.

Yes, India already has four private credit bureaus. Credit Information Bureau India Ltd or CIBIL, for instance, collects data on loan repayment. Central Repository of Information on Large Credits (CRILIC) collects information on large borrowers with exposure of over Rs 5 crores. But there are differences between a private credit bureau (PCB) and a PCR. The key being that PCBs are for-profit enterprises, privately controlled and therefore tend to focus on the more profitable data segments. A Public Credit Registry, on the other hand, is a non-profit entity, and therefore brings more comprehensive data coverage, from the largest to smallest borrowers. A PCB can bring more value addition through data analytics and complement a PCR.

By bridging the information gap, a public credit registry will ensure credit flow to the last mile customers, that have been left out of the formal financial fold. The World Bank estimates the current credit gap for MSMEs in India to be at $380 billion. Better information on borrowers credit history will also help banks avoid the risky borrowers, and thereby manage their asset quality better. Creating a public registry of this kind will also aide ease of doing business in India.

PCR has not been operationlised in India just yet. The Reserve Bank of India (RBI) first set up a High-Level Task Force on the Public Credit Registry for India, headed by YM Deosthalee in 2018. The task force has submitted its report during the year, recommending that the registry must capture all loans information and that borrowers should also bee able to access their own credit history. The report said that data could be made available to stakeholders on a need-to-know basis and that data privacy would be protected at all times. The RBI is in the final stages of identifying entities that will set up the PCR. Tata Consultancy Services and Dun & Bradstreet have been identified as the L1 bidders to implement the project after a technical evaluation.