With Indians embracing credit for everything—from cars and cell phones to homes and holidays, it was only a matter of time before major ratings firms sensed a big business opportunity: for independent credit bureaus that keep tabs on individual borrowers and their credit history.
Experian Group Ltd, the Dublin, Ireland-based global giant, has set up a Mumbai office and has begun working with foreign banks such as HSBC, Citibank and Standard Chartered to help manage their customers. ICICI Bank Ltd has also signed on with Experian.
Mumbai-based High Mark Credit Information has, meanwhile, teamed up with CBCInnovis and Fair Issac Corp., two US-based veteran credit ratings companies, to establish a credit bureau.
Both Experian and High Mark say they are in talks with the Reserve Bank of India to set up credit ratings bureaus even as the central bank, which regulates all banking activities in the country, is in the process of finalizing licensing norms for such firms.
Typically, a credit bureau provides information on individual borrowers to various institutions, such as credit card companies, banks, telecom service providers and mortgage companies. This information, based on the individual’s borrowings as well as repayment history and pattern, helps banks assess the creditworthiness of a borrower. Depending on the credit quality of the borrower, banks could also decide to offer differential rates on borrowings or turn down high-risk individuals.
“It becomes easier for them (banks) if there is one source of data that will not only give them the bare statistics of the consumers but also analysis of the data. The banks can then make tailor-made products for consumers,” says Stephen Denby, managing director, Experian Decision Analytics.
Denby said while Experian has been talking to various banks for their participation in an independent credit bureau, it doesn’t necessarily mean that foreign and Indian banks, such as ICICI Bank, will end up as partners in such a venture.
In fact, one such bureau has functioning for the past few years. The Credit Information Bureau (India) Ltd provides corporate credit history, though it does track consumer credit history as well. “So far, banks were cagey about sharing information with the Credit Information Bureau,” says a senior banker who did not wish to be named. “As the majority stake holders of this bureau are State Bank of India and Housing Development Finance Corporation, other banks have not been comfortable about the idea of sharing consumer information as they see a conflict of interest.
Because of this, Credit Information Bureau’s consumer credit tracking did not really take off... An independent credit bureau where no bank is holding a majority stake will benefit the industry immensely.”
Typically, once a bank becomes a member of a credit bureau, it will be required to send in data in a prescribed format, usually including the personal details of a customer, such as name, age, the number of accounts he has with various banks, his balances and loan as well as credit-card information as well as payment history. Once the database is created, banks can request relevant information on new applicants. Often, individuals are also able to get their credit ratings and scores from such bureaus after paying a fee. “With a credit bureau in place, it becomes easier for banks to interact with customers and service them,” says Denby.
As banks aggressively push for credit growth, the quality of assets is becoming suspect. The Indian banking regulator is not happy with the 30% credit growth for the third year running. The number of defaulters among the 21 million credit-card holders has been on the rise and some of the banks are experiencing as much as 7% non-performning assets in this segment. The mortgage market has also been booming and the incidents of loan defaults rising. As on 31 December 2006, the total outstanding loans provided by housing finance companies stood at Rs2.74 lakh crore. As a result, industry experts say independent credit bureaus will help banks better analyse risk and potentially lower defaults.
Experian, which has hired an India business development head to ramp up its business here, employs about 12,500 people in over 30 countries that service customers in 60 countries.
It reported annual sales of $3.1 billion. High Mark was set up by Satish Mehta, a former executive of Credit Information Bureau.