Avinash Shetty, a resident of Mumbai, recently applied for a housing loan from ICICI Bank, without enclosing his bank statement for the preceding three months.
He was hoping he could this way conceal the monthly instalments he had paid during the last two months for a two-year personal loan taken from HDFC Bank.
To his utter surprise, an ICICI Bank executive the next day "informed" him of the personal loan he had taken from HDFC Bank. He was told the bank has access to his entire credit history.
Times are a-changin' indeed.
Credit histories were kept of corporate borrowers earlier. Now every retail borrower's account details are an open secret, whether one likes it or not.
All banks and non-bank financial companies will have access to loan repayment history of every borrower and payment record of every credit card holder.
And your bank will no longer be required to seek your consent before sharing your personal information and credit history with credit information companies.
The change is happening with the passing of The Credit Information Companies (Regulation) Bill by both the houses of Parliament.
Every month, banks will have to provide details of their retail borrowers and credit card holders to Credit Information Bureau (India) Ltd.
The information to be provided to Cibil will be very detailed.
Banks will have to fill up a Credit Information Report for every borrower and credit card holder every month and provide it to Cibil on an encrypted compact disc. Cibil then loads information provided by a bank onto its database without any human intervention.
Banks wanting to know the credit history of a loan applicant or a credit card applicant can access Cibil's database either online or through a file transfer protocol.
The enquiry format helps generate best results for information seekers through matching of fields like name, date of birth, address, city, pin code and income tax's permanent account number.
Matching of several fields is necessary as there could be many persons with the same first name, middle name and surname across the country.
The access given to banks and NBFCs to data with Cibil is for a fee per request.
Credit information sharing will save banks from issuing credit cards or sanctioning loans to applicants who have defaulted with other banks.
A lot of people would earlier default on repayment of a loan or clearing credit card dues with one bank and then get another credit card or a loan facility from another bank. The credit information act will put an end to all this.
The benefit for borrowers that will flow over time is adoption of credit scoring methods by banks for pricing of loans or credit card rollovers.
Banks' customers with a good credit history would then start getting loans at lower interest rates because of the lower perceived risks.
