The Reserve Bank of India (RBI) recently shortened the timelines within which credit information needs to be reported and updated by credit institutions and Credit Information Companies (CICs), respectively through a notification on 8 August 2024 (Notification). Noting the pace at which short term credit is growing and digital credit underwriting is being undertaken, the RBI highlighted that Credit Information Reports (CIRs) must reflect information that is as close as possible to the current date. Prior to the Notification, credit institutions were reporting credit information to CICs on a monthly basis, resulting in outdated data which was 30-60 days old. Credit institutions are now required to report credit information to CICs within seven calendar days following the 15th and last day of each month. Correspondingly, the CICs are required to update the information on a fortnightly basis. Moreover, CICs are to ingest received credit information within five calendar days from the date of its receipt instead of seven days. To ensure compliance, CICs will be required to submit a list of credit institutions which fail to comply with the Notification to the Department of Supervision, RBI on a biannual basis. Noting the changes required to existing operations, credit institutions and CICs have been given time till 1 January 2025 to implement the Notification.
Picking up the pace
The adoption of shorter timelines for submitting and updating credit information is crucial to facilitate better decision-making in the lending ecosystem. Weak foundations for the financial system would be set if market players continued to rely on inaccurate CIRs, therefore setting a backdrop for higher risk of defaults and cascading impact to the financial ecosystem. With credit information being submitted to CICs in higher frequencies, the credit information of customers would be closer to real-time, allowing credit institutions to make better credit decisions. This would also benefit borrowers by giving them a more realistic picture of their credit profiles, allowing for competitive interest rates and terms, particularly for the borrowers accessing business credit with lower tenures.
The Fintech industry has demonstrated that weekly filings are possible, and a regulatory push by the RBI key to a wider adoption of frequent and updated filings. Ultimately, the ambitious goal of achieving daily submission and scoring will require continued collaboration between CICs, credit institutions, while the benefits of enhanced accuracy and timeliness will be well worth the effort to the overall lending ecosystem.
Need for Speed
The growth of Fintechs and their ensuing proliferation of short-term loans have had a symbiotic relationship with shorter credit reporting timelines. Fintechs, having integrated credit offerings into all their customer touchpoints, have increased this propensity for impulse buying and consumption borrowing, which in turn drives demand for short-term loans. Shorter credit reporting timelines, such as fortnightly or daily submissions, have emerged as a critical balancing act for customers in assessing their need for credit, impact on credit profile, and also ability to access low-cost credit. Updated borrower credit profiles will allow Fintechs to further accelerate their lending processes, catering to the growing demand for short-term loans.
Larger picture for the lending ecosystem
The RBI, through an approach paper in 2020, floated the idea of establishing a public credit registry (PCR) aimed to reform credit underwriting by providing a comprehensive and centralized database of borrowers' credit histories. Despite the potential benefits, including enhanced risk assessment, more accurate pricing of credit, and improved regulatory oversight, this initiative has not been implemented yet. In furtherance of the RBI’s objective of enhanced credit risk assessment, the introduction of shorter credit reporting timelines serves as an important step in streamlining digital lending in India. This is complemented by the recent RBI directions with respect to penal charges in loan accounts and harmonised instructions on the standardised form in which the Key Facts Statement must be presented to borrowers. The shorter timelines for credit reporting will go a long way in facilitating seamless and frictionless credit delivery as an overall regulatory objective of responsible credit access and delivery to customers.
