Functions of credit information companies (CIC) and membership to CIC

A Credit Information Company (CIC) is an independent third-party agency registered under CIC laws that collects financial data of individuals about their loans, credit cards, and other related information and shares it with its members, who generally happen to be banks and other financial institutions.

The Credit Information Companies (Regulation) Act, 2005 (“CIC Act”), is legislation enacted by the Government of India to regulate the actions of credit information companies in India (“CICs”) in India and to facilitate the efficient distribution of credit as well as for matters connected to the same.

Following the implementation of the CIC Act, the Reserve Bank of India and the Government of India have enacted the Credit Information Companies Regulations, 2006 (“Regulations”) and the Credit Information Companies Rules, 2006 (“Rules”) issued under the Act, respectively.

(The CIC Act, the Regulations, and the Rules are collectively referred to as the “CIC Laws”).

Section 14 of the CIC Act provides the details regarding the functions of a credit information company:

(1) A credit information company may engage in any one or more of the following forms of business, namely:–

(a) to collect, process, and collate information on trade, credit, and financial standing of the borrowers of the credit institution which is a member of the credit information company;

(b) to provide credit information to its specified users or the specified users of any other credit information company or to any other credit information company being its member;

(c) to provide credit scoring to its specified users or specified users of any other credit information company or to other credit information companies being its members;

(d) to undertake a research project;

(e) to undertake any other form of business which the Reserve Bank may, specify by regulations as a form of business in which it is lawful for a credit information company to engage.

(2) No credit information company shall engage in any form of business other than those referred to in subsection (1).

(3) Any credit information company for the purposes of carrying on the business of credit information may–

(a) register credit institutions and other credit information companies, at their option as its members, subject to such terms and conditions as may be pre-determined and disclosed by such credit information company;

(b) charge such reasonable amount of fees, as it may deem appropriate not exceeding the maximum fee, as may be specified under section 27, for furnishing credit information to a specified user;

(c) generally to do all such other acts and perform such other functions as are necessary to facilitate the proper conduct of its affairs, business, and functions by the provisions of this Act.

Members of a CIC: As per the CIC Act only the following can become members of a CIC:

(1) Credit Institutions- to know who constitutes credit institutions, please check Section 2 (f) of the Act by visiting the “CIC Act”.

2(f) “credit institution” means a banking company and includes–

(i) a corresponding new bank, the State Bank of India, a subsidiary bank, a co-operative bank, the National Bank and regional rural bank;

(ii) a non-banking financial company as defined under clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934);

(iii) a public financial institution referred to in section 4A of the Companies Act, 1956 (1 of 1956);

(iv) the financial corporation established by a State under section 3 of the State Financial Corporation Act, 1951 (63 of 1951);

(v) the housing finance institution referred to in clause (d) of section 2 of the National Housing Bank Act, 1987 (53 of 1987);

(vi) the companies engaged in the business of credit cards and other similar cards and companies dealing with the distribution of credit in any other manner;

(vii) any other institution which the Reserve Bank may specify, from time to time, for this clause;

(2) Credit Information Companies- to know who constitutes a credit information company, please check Section 2 (e) of the Act by visiting the “CIC Act”.

“2(e)credit information company” means a company formed and registered under the Companies Act, 1956 (1 of 1956) and which has been granted a certificate of registration under sub-section (2) of section 5;)

(3) Specified Users- to know who constitutes specified users, please check Section 2 (l) of the Act and Regulation 3 of the Regulations by visiting “CIC Act” and “CIC Rules” respectively.

2(l) “specified user” means any credit institution, credit information company being a member under sub-section (3) of section 15, and includes such other person or institution as may be specified by regulations made, from time to time, by the Reserve Bank to obtain credit information from a credit information company;

Section 15 of the CIC Act made it mandatory for -Credit institutions to become members of CIC and section 16 deals with when a financial institution fails to become a member of CIC.

Section 15 provides as follows;

(1) Every credit institution in existence on the commencement of this Act, before the expiry of three months from such commencement or within such extended period, as the Reserve Bank may allow on its application and subject to being satisfied with the reason for the extension, shall become a member of at least one credit information company.

(2) Every credit institution which comes into existence after the commencement of this Act, before the expiry of three months from its coming into existence, or within such extended period, as the Reserve Bank may allow on its application and subject to being satisfied with the reason for the extension, shall become a member of at least one credit information company.

(3) A credit information company may, at its option, become a member of another credit information company.

(4) No credit information company shall refuse to register a credit institution or another credit information company as its member without providing reasonable opportunity of being heard to such credit institution or credit information company, whose application it proposes to reject and recording reasons for such rejection and a copy of such order of rejection shall be forwarded to the Reserve Bank.

(5) A credit institution or credit information company aggrieved by the order of rejection of its application for its registration as a member of a credit information company under sub-section (4) may prefer an appeal to the Reserve Bank, within a period of thirty days from the date on which such order of rejection was communicated to it:

Provided that the Reserve Bank is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, it may allow it to be filed within a further period not exceeding thirty days.

(6) On receipt of an appeal under sub-section (5), the Reserve Bank, after giving the appellant and other concerned parties, an opportunity of being heard, passes such order as it deems fit.

(7) The decision of the Reserve Bank where an appeal has been preferred to it under sub-section (5) shall be final and the order of the credit information company under sub-section (4) shall be final after the expiry of the said period of thirty days where no appeal has been preferred under that sub-section to the Reserve Bank.

(8) Every specified user shall be entitled to obtain credit information from the credit information company of which such specified user is a member.

Section 16: Failure to become a member of CIC:

(1) Where a credit institution–

(a) abstains from becoming a member of at least one credit information company; or

(b) at any time is not a member of any credit information company,

The Reserve Bank suo moto or on a complaint from a credit information company may direct such credit institution to take necessary steps within such time, as it may specify becoming a member of a credit information company.

(2) In case a credit institution fails to comply with the directions of the Reserve Bank under sub-section (1), to become a member of at least one credit information company, the Reserve Bank may, without prejudice to the provisions of this Act, intimate such failure to any other authority for taking such action as it may deem fit.

Source: INDIA CODE

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