A public credit registry is an information repository that collects all the loan information of individuals and corporate borrowers. A credit repository helps banks to distinguish between a bad and a good borrower and accordingly offer attractive interest rates to good borrowers and higher interest rates to bad borrowers.
The setting up of Public Credit Registry is recommended by Y.M. Deosthalee (Chairman of L&T Finance Holding) Committee which was instituted by the RBI.
Public Credit Registry will improve access to credit and will strengthen the credit culture among consumers. It can also address the bad loan problem staring at banks, as corporate debtors will not be able to borrow across banks without disclosing existing debt. Public Credit Registry may also help to improve the ranking of India in the World Bank’s Ease of Doing Business Index. Currently, India is 77th best country in the world to do business as per the World Bank.
Recommendations of Y.M. Deosthalee Committee
Y.M. Deosthalee Committee (Chairman and 9 other members) submitted its report to RBI in April 2018. The major recommendations are as follows:
- RBI should set up a Public Credit Registry in due course and this should be backed by a legal framework. The central bank may also consider moving the Public Credit Registry to a separate Non-profit entity.
- The Public Credit Registry should be available for all the stakeholder i.e. banks to access information about the individuals and corporate entity when required. Steps should also be taken for privacy protection.
- For the accuracy of data in the registry, the reporting institutions should be made liable. Corrective steps should be taken against the reporting institution for furnishing wrong information to the registry.
- PCR should also capture data such as external commercial borrowings, market borrowings, and all contingent liabilities; and should provide a holistic picture of the borrower’s indebtedness.
Benefits of setting up a Public Credit Registry
- Financial inclusion and access to credit are pre-requisites for inclusive growth will be there after its introduction. Recent reforms are targeted to bring in larger population into the formal banking system. To assess the effectiveness of existing financial inclusion measures, all loans, ideally without any threshold in the loan amount, should get captured in the Public Credit Registry. By having a registry of all loans in the form of a Public Credit Registry, the credit delivery system can be made more efficient. With the help of Public Credit Registry, people who cannot take a loan from the banks and financial institutions due to limited or no credit history can be brought under the ambit of the formal credit system. The resulting increase of credit flow to the MSME sector and to the underserved people of the country could put the Indian economy to a higher growth path.
- Public Credit Registry, as the single point of mandatory reporting of credit information, would not only reduce the reporting burden of the credit institutions, especially for the small sized credit institutions but will automatically lead to the removal of inconsistencies due to multiple level reporting. This will lead to an improvement in data quality.
- As the Public Credit Registry will collect the information from the banking as well as form other financial entities, it will help the borrowers with good borrowing history. Public Credit Registry will help banks and other financial institutions to differentiate goods borrowers from the bad borrowers depending upon their previous borrowing.
- The World Bank ranks economies on their ‘ease of doing business’, where the rankings are determined by sorting information on ten topics. Each topic has several indicators and different weight is assigned to it. One of the ten topics consideed in the exercise is ‘getting credit’, where the efficiency of the credit information systems in the country is measured by four indicators. These four indicators are the strength of legal rights, depth of credit information, percentage of adults covered in public credit registry and in credit bureaus. As India does not have a Public Credit Registry, the performance in one of the four indicators of ‘getting credit’ stands at zero. With a Public Credit Registry in place and with full coverage ensured by mandatory reporting, the performance in the ‘getting credit’ topic would improve and in turn, the ranking of India in ease of doing business index would definitely improve.
- From a regulation, supervision, policy-making and financial stability point of view, the value of having a Public Credit Registry is undeniable. With a Public Credit Registry in place, the bottlenecks in the effective transmission of policy recommendations can be identified and addressed accordingly. Transparent credit information is a necessity for sound risk management and financial stability. A Public Credit Registry with linkage to ancillary credit information systems, can help in effective supervision and help lenders to take timely corrective steps to prevent mounting of bad loans.