Credit bureaus came to India quite late but have grown in a short span of time. On the one hand, credit scores have helped banks and other lending institutions to be more vigilant while disbursing loans and have brought their delinquency rates down. On the other hand, customers have also become careful with loan repayments as they now know that chances of getting a loan again depends on their credit behaviour. Arun Thukral, managing director, Credit Information Bureau (India) Ltd, talks about the journey of credit bureau and score in India till now and the way ahead.
How has using credit scores helped the credit card industry?
The credit card portfolios of credit card issuers have improved tremendously. The credit card market had shrunk post the 2008 crisis but now it has bounced back. Back then, say on a scale of 10 the enquiries had come down to three but now it is back to 10 and is growing. So we feel that growth is happening.
We still have very bad data collection and record-keeping mechanism. How do you manage?
We have invested a lot into it. We are a company and need to do it. We are responsible and accountable for data. I know that there are many people who think that they should have good score but they find they do not have a good score. This happens mostly with credit card holders. What happens is that consumers settle with the bank, say by paying half the amount outstanding. But this remains in the books of the bank and this creates problem.
However, customers are now becoming more responsible because they also know that there is something called credit score. So things are gradually moving.
Can consumers get differential pricing based on credit history?
The Reserve Bank of India (RBI) has said in its monetary policy that banks should be able to provide differential pricing which is happening. Some banks are actually integrating credit score which has now become a key variable in their decision-making process. Earlier, components such as processing fee were waived off in case the bank thought that the customer has a good credit history. But today if you have good score, based on your negotiation power, you can get a better interest rate when you borrow.
But customers could negotiate with banks earlier as well for better rates or get other charges waived off.
You could negotiate earlier but to a limited extent. Today, you can directly access your credit report and know exactly what the bank is looking at. This gives you confidence to negotiate for a better deal. You can ask the bank for benefits based on a document that shows you are a good customer. Now if the bank wants to retain you, obviously it will give you a better offer. This is because the customer always has a chance as there is competition in the industry. The chances of getting a loan is high if you have a good credit score. Banks have said that they look at credit score while deciding whether they should give a loan or not. A lot of public sector banks have started doing it. People have got better deals from banks. I know people who have got 25 basis points cut in interest rate on advances.
What are the parameters that a bank looks at to give a better interest rate to the customer?
The bank will look at a combination of factors. They won’t take a call just based on the credit score. Banks first take a score based on factors such as demography, income and occupation of the customer. If the customer has a relation with the bank already, it will consider his/her financial behaviour with the savings account. Credit information report and a score are integrated while taking decisions. All these factors along with the credit score becomes a powerful tool. Now consider that the bank score shows a high rating but Cibil score is not good enough, then they will take a different call. This is because credit score shows them the customer’s overall financial pattern. The bank score gives the bank a view of the customer only from the bank’s point of view and not that of the industry.
Is there data that shows banks are taking decision based on the score?
There has been an increase in credit uptake in home loans, auto loans and two-wheeler loans. More than 90% of loans have been sanctioned to borrowers having a Cibil TransUnion score of over 700. Almost 80% of home loans are given to customers with score above 800. Also delinquencies for personal loans, home loans and auto loans are decreasing. Timely availability of credit information minimizes the chance of default.
Recently you had said that mobile bills will also be considered for credit score.
Yes. But as of now telecom data is not being shared with the credit bureau. As of today, they are not officially sharing the data. There is a service provider licence where it has a clause stating that service providers cannot share the telecom data with anyone else due to privacy issues. So till that amendment takes place by the Telecom Regulatory Authority of India, the telecom regulator, inclusion if mobile bills will not be possible.