Public Credit Registry: What’s That?

The June 6, 2018 monetary policy of the Reserve Bank of India (RBI) announced that a Public Credit Registry (PCR) would be set up “in a modular and phased manner”. It also released the report of a high-level task force on Public Credit Registry for India, chaired by Y M Deosthalee.

The task force was set up “to review the current availability of information on credit, the adequacy of existing information utilities, and identify gaps that could be filled by a PCR”. Its report, submitted on April 4, 2018, recommended that “with a view to address information asymmetry, foster access to credit, and strengthen the credit culture in the economy, a PCR should be set up by the Reserve Bank”.

Does anyone know the progress of the project?

A PCR is a centralised database for aggregating financial and non-financial information from several databases. The idea behind it is to create records of everything that the regulators, lending institutions, credit bureaus, rating agencies and even the borrowers themselves want to know.

The establishment of the Central Repository of Information on Large Credits (CRILC) preceded this. Till the RBI set up CRILC in June 2014, data on banks’ bad loans was disaggregated.

Many years ahead of CRILC, in FY2008, the banking regulator had tried to set up a credit information system where the banks could share data of bad loans. But it did not work and hence the RBI did not have comprehensive credit information about any borrower.

Once CRILC was in place, the banks started supplying data real time for all loans of Rs 5 crore and above. For accounts turning bad, the data was weekly, while good accounts were reported monthly.

Only the RBI and the banks can access this data. The borrowers and even the rating agencies cannot. It gives a comprehensive view of the banking system’s exposure to every large borrower and also reveals if the same borrower is classified differently by different banks.

Just a year before CRILC came into existence, the RBI had changed its supervisory model — from CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and system and control) to risk-based supervision (RBS).

The combination of RBS and CRILC made the regulator aware of what was happening on the Indian banking turf and led to a system-wide audit. This is how the asset quality review or AQR — a first-of-its-kind health check of Indian banking — was conceived.

The banks were given six quarters — between October-December 2015 and January-March 2017 — to clean up the mess. The process spilled over, several banks had severe pain, but in the end they came out healthy. For the banking system, it was a classic episode of “to hell and back”.

The PCR is a single window for information on all loans — retail, corporate and micro, small and medium enterprises (MSMEs) — and there’s no minimum threshold for the size of the loans. Even data from external sources such as the Ministry of Corporate Affairs, Central Registry of Securitisation Asset Reconstruction and Security Interest of India, and Goods and Services Tax Network could have been incorporated in this framework.

Essentially, it aggregates all data even from outside the banking system — corporate filings, and tax and utility payments — and offers a 360-degree view of a borrower’s health.

At the moment, four private credit bureaus (PCBs) are operating in India — TransUnion CIBIL Ltd, Equifax Credit Information Services Pvt Ltd, Experian Credit Information Co of India Pvt Ltd and CRIF High Mark Credit Information Services Pvt Ltd. All scheduled commercial banks, cooperative banks, non-banking financial companies (NBFCs), including microfinance institutions and housing finance companies, state financial corporations, all India financial institutions and credit card companies share information with such bureaus.

It is a widely recognised concept globally and countries such as Germany, Portugal, Spain, Brazil, among others, already have fully functional PCRs. On similar lines, the PCR in India is expected to be a repository of all key credit information (debt facilities, collaterals, financials, etc.) of a particular borrower collected from multiple stakeholders. The task force expected it to track a credit from its origination to maturity, keeping a record of all material events, including timely repayments and defaults, if any.

With the volume of other debt instruments such as commercial papers, non-convertible debentures and loans given by NBFCs rising, it is imperative to have the information of all debt obligations, and not just bank loans — be it in rupee or in foreign currency. This is why the PCR covers both fund and non-fund facilities availed of by a particular borrower from domestic as well as overseas lenders (including external commercial borrowings, masala bonds, foreign portfolio investment, etc.).

Access to credit information, including details of debt and repayment history, will eventually lead to automated lending by way of “flow-based lending”, the report says . Cash flow loan is a kind of unsecured borrowing used for working capital of small businesses.

It points out that as most banks focus on large corporations for loans, the MSMEs are left with limited options for borrowing. When payment history and validated debt details are made available, it will increase the credit availability to the MSMEs and deepen the financial markets. This will also support the RBI’s thrust on financial inclusion.

Former RBI Deputy Governor Viral Acharya had said that being for-profit enterprises, the PCBs may focus primarily on those data segments around which it is most profitable to build a business model. Internationally, it is found that being a non-profit enterprise, the PCR is able to ensure much better data coverage than PCBs.

The PCR needs to be backed and governed by a comprehensive Public Credit Registry Act in consultation with the government. Also, it will have to follow the latest privacy guidelines based on a laid-down consent framework.

According to the former deputy governor, a PCR will help in credit assessment and pricing by banks, risk-based, dynamic and countercyclical provisioning at banks, supervision and early intervention by regulators, and aid in understanding “if transmission of monetary policy is working, and if not, where are the bottlenecks”. The registry can also be used to restructure stressed loans more effectively.

“In the absence of a central database of credit information, the creditors are restricted to the information they have about their clients, based only on their limited transactions or interactions with the clients, and this could lead to suboptimal outcomes,” Acharya had said in his speech at the Statistics Day Conference at the RBI headquarters on June 6, 2017.

A June 2021 Economic Times report says the RBI had come out with a draft Public Credit Registry of India Bill for review by experts. The registry will first be launched with access only to banks and later other entities will be covered.

The “Agenda for 2021-22”, in the section titled “Communication, International Relations, Research and Statistics” in the May 2022 RBI annual report, says that one of the goals of the previous year was to “implement a scalable end-to-end system for PCR in a phased manner, starting with scheduled commercial banks”.

The “Implementation Status” says hardware and software set-up installations have been completed at the data centre and disaster recovery sites of the Indian Financial Technologies and Allied Services. The system requirement study has been done, and system design and development of a comprehensive credit information repository is in progress. But there is no reference to the PCR (italics mine).

This column first appeared in Business Standard on November 28

The writer, a consulting editor with Business Standard, is an author and senior adviser to Jana Small Finance Bank Ltd

His latest book: Pandemonium: The Great Indian Banking Tragedy   

To read his previous columns, please log onto https://bankerstrust.in

Twitter: TamalBandyo