In terms of Section 15 of the Credit Information Companies (Regulation) Act, 2005(CICRA), every credit institution shall become a member of at least one Credit Information Company. Normally to adhere to the above regulation most of the Banks and Financial institutions become members of CIBIL to seek CIR of the borrower entity, all the partners, promoters, directors, and guarantors to the loan for the purpose of making the credit decision.
(In my earlier post with the title “CIBIL credit scoring system now upgraded” I explained the topics of ‘how the three digits numeric scores in the CIBIL report arrived’, ‘how to interpret that 3 digits numeric score’ and ‘how the report becomes the useful tool for making credit decision by the lenders’.)
The problems faced by credit institutions in the CIR system:
Under the provisions of Section 17 of CICRA, every CIC seeks and obtains credit information only from its member banks and financial institutions. Such information contributed by members will be shared in the form of a Credit Information Report (CIR) to its members as and when they call for it. The problem with credit institutions was that they get a credit information report which does not include credit history related to those non-member Credit Institutions with which the borrower/client might have/had a current or past exposure.
RBI has examined the pros and cons of a certain possible alternative to overcome this problem of incomplete/inaccurate information along with suggestions/comments obtained from IBA and CIC. In view of the above, the regulator has come to the conclusion that the best option would be to mandate all banks and financial institutions to become members of all the CICs and moderate the membership and annual fees suitably.
In addition to scheduled banks, all Co-Operative banks are advised to comply with RBI directives of January 15, 2015, and become members of all CICs and submit data (including historical data) to them.
At present in India, there are 4 domestic Credit Information Companies (CICs) that have been granted the certificate of registration by RBI viz.
- Credit Information Bureau (India) Limited (CIBIL).
- Equifax Credit Information Services Private Limited
- Experian Credit Information Company of India Private Ltd.
- CRIF High Mark Credit Information Services Private Ltd.
Originally posted on January 15, 2015, modified and reposted on February 2023
Please click below to know
What is new in upgraded credit scoring system of CIBIL