Recently, RBI Deputy Governor Viral Acharya made a case for setting up a Public Credit Registry (PCR), incorporating unique identifiers: Aadhaar for individual borrowers and Corporate Identification Number for firms.
What is PCR?
A public credit registry is an information repository that collates all loan information of individuals and corporate borrowers. A credit repository helps banks distinguish between a bad and a good borrower and accordingly offer attractive interest rates to good borrowers and higher interest rates to bad borrowers.
The move is based on the recommendations of a committee, headed by Y.M. Deosthalee.
PCR will address issues such as information asymmetry, improve access to credit and strengthen the credit culture among consumers. It can also address the bad loan problem staring at banks, as corporate debtors will not be able to borrow across banks without disclosing existing debt. A PCR may also help raise India’s rank in the global ease of doing business index.
PCR will address issues such as information asymmetry, improve access to credit and strengthen the credit culture among consumers. It can also address the bad loan problem staring at banks, as corporate debtors will not be able to borrow across banks without disclosing existing debt. A PCR may also help raise India’s rank in the global ease of doing business index.
Setting up the PCR will help improve India’s rankings in the World Bank’s ease of doing business index.
Panel’s proposals
The committee has suggested the registry should capture all loan information and borrowers be able to access their own history. Data is to be made available to stakeholders such as banks, on a need-to-know basis. Data privacy will be protected.
Why PCR is necessary
Credit information is now available across multiple systems in bits and pieces and not in one window. Data on borrowings from banks, non-banking financial companies, corporate bonds or debentures from the market, external commercial borrowings (ECBs), foreign currency convertible bonds(FCCBs), masala bonds, and inter-corporate borrowings are not available in one data repository. PCR will help capture all relevant information about a borrower, across different borrowing products in one place.
It can flag early warnings on asset quality by tracking performance on other credits.
PCR in other countries
PCR in other countries now include other transactional data such as payments to utilities like power and telecom for retail consumers and trade credit data for businesses. Regularity in making payments to utilities and trade creditors provides an indication of the credit quality of such customers.
Innovation in lending
Access to credit information, including debt details and repayment history would drive innovation in lending.
For example, currently most banks focus on large companies for loans and consequently the micro, small and medium enterprises are left with limited options for borrowing.
With satisfactory payment history and validated debt details made available, it will increase the credit availability to micro, small and medium enterprises along with deepening of the financial markets. This will support the policy of financial inclusion.
ContextThe Reserve Bank of India made a strong case for setting up a public credit registry in India to address the twin balance sheet problem of the banking sector and the corporate sector.
For example, currently most banks focus on large companies for loans and consequently the micro, small and medium enterprises are left with limited options for borrowing.
With satisfactory payment history and validated debt details made available, it will increase the credit availability to micro, small and medium enterprises along with deepening of the financial markets. This will support the policy of financial inclusion.
