Here's why RBI penalised credit info companies and what borrowers should do now

The Reserve Bank of India (RBI) fined four credit information companies (CICs) more than Rs 1 crore in total earlier this week for failing to update borrowers’ credit information, which causes significant difficulties for bank customers when applying for banking services like loans and credit cards.

For breaking certain provisions of the act and the rules governing credit information companies, the central bank fined TransUnion CIBIL Ltd, Experian Credit Information Company of India Pvt Ltd, Equifax Credit Information Services, and CRIF High Mark Credit Information Services a total of Rs 26 lakh, Rs 24.75 lakh, Rs 24.25 lakh, and Rs 25.75 lakh, respectively.

These four companies were subjected to a statutory inspection by the RBI regarding their financial standing as of March 31, 2021. Upon examination of the inspection report, supervisory letter, and all related correspondence, it became clear that certain information regarding the credit information, particularly updating credit information, maintained by the companies was not accurate and complete.

These companies received notifications from the RBI instructing them to provide justification for why a penalty shouldn’t be withheld due to their failure to adhere to the CIC (R) Act read with CIC Rules. According to the RBI, the claim of non-compliance with a number of requirements was supported and called for the implementation of a financial penalty against the corporation.

Customers had frequently complained to the RBI about CICs failing to update borrowers’ statuses. When users report a default issue or point out a faulty classification, several customers have complained that CICs fail to take action within the allotted timeframe.

Due to banks’ use of the CICs’ rating system and database while making choices regarding loan and card sanctions, many customers were unable to obtain loans or credit cards. The CICs are notified right away whenever a credit card customer misses a payment on a credit card or loan. When CICs corrected the payments, they did not, however, reclassify them.

The RBI claimed that within 30 days of receiving such complaints, these companies had not updated the credit information relating to them, nor had they informed them of the steps taken to correct discrepancies or the reasons for their inability to do so in a timely manner.

They keep track of borrowers’ credit information (including that of people, corporations, and SMEs), which banks and other lending institutions can access. Banks, credit card firms, and non-bank financial organisations are just a few of the sources from which they gather information about different credit providers. On a scale of 300 to 900, with 900 being the highest rating, they rate the debtors. Banks and finance companies typically base their decisions on the credit bureaus’ ratings.

A borrower is more likely to get approved for a loan or credit card quickly and at a cheaper interest rate if his rating is over 800. A borrower’s rating will drop if he makes a default. The likelihood of obtaining cheap interest rates, loans, or even credit cards decreases as the rating falls below 500.

Even if they don’t have any information about the entity, they charge for inquiries. Credit information reports (CIRs) must be used by banks as part of their credit appraisal process. The credit information that they have gathered and are maintaining is expected to be updated on a regular basis, either monthly or at shorter intervals as may be mutually agreed upon by the banks and the CICs.

All of the creditors and borrowers in the financial system are described in full by CICs. This indicates that they are keeping an eye on the 140 lakh crore in outstanding loans in the banking system. The names of the directors, guarantors, and partners who participated in the loans are also recorded by CICs.

According to TransUnion Cibil data, there were 34,304 suit-filed accounts as of December 2022, totaling Rs 934,882 crore, where banks have started legal action against borrowers for loan defaults. Furthermore, according to Cibil data, there were 16,185 willful defaulters with a total debt of Rs 347,424 crore as of December 2022.

Borrowers should contact the CIC after a month to inquire about their status when they miss a payment and then make it up. If their rating is declining and they are still considered defaulters, they should raise the matter with the CIC for resolution. If borrowers don’t request a report from CICs, they are unaware of their credit rating and credit status. They don’t have direct access to the CICs database, in contrast to banks.

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