Mumbai: Credit Information Bureau (India) Ltd, or Cibil, the country’s largest collector of databases on borrowers, has launched a credit score that will help banks rate new borrowers with a credit history of less than six months.
The previous version rated all borrowers with a credit history of less than six months at 0. The new version, christened Cibil TransUnion Score 2.0, will grade first-time borrowers on a risk index of 1 to 5—1 being the highest risk of default and 5 the lowest.
“This will help credit institutions classify new-to-credit customers as high, medium or low risk,” Cibil said in a statement on Thursday.
Individuals with no loans outstanding and who have no pending enquires about them from banks will be rated at -1, Cibil said.
Indian banks use Cibil’s data to estimate the likelihood of loan repayments by borrowers. With a database of more than 200 million and 862 financial members, including banks and non-banking financial companies, Cibil is India’s largest credit bureau. Banks have been accessing the scores since 2007 and are increasingly dependent on them to check individual credit history before lending.
Cibil expects the new version of credit scoring to help banks identify 10% incremental defaulters, said Satish Pillai, chief operating officer.
For borrowers with a credit history of more than six months, the credit bureau will rate according to a three-digit number ranging from 300 to 900—300 indicating the highest default risk.
“We think this new score will help banks distinguish between the good and very good borrowers. The Indian market is dynamic and there are many new borrowers particularly in the low-income category who take loans for two-wheelers. For these borrowers, the new system could provide sooner access to credit,” Pillai said.
For new borrowers with no loans outstanding and no enquiries from banks, the grade will be based on the type of loan, total indebtedness and demographics such as age, he added.
V.N. Kulkarni, chief counsellor at Abhay Credit Counselling Centre, said the new grades will help because “quite a few number of people have never borrowed before”.
He added, “Maybe going forward, just like in Western countries, Indian borrowers can also demand concessions from banks on lending rates based on their credit score. That, however, has not happened so far.”
Since April 2011, Cibil has permitted individuals to access credit scores for a fee. However, borrowers have not been able to use their scores as a bargaining chip for cheaper loans.
Consumers can access their detailed credit report and score by paying Rs.450 and completing a form at cibil.com and furnishing proofs of identity and address.
Pillai said the public will be able to access the new reports after all the banks migrate to the new system, which is expected to happen in three months.