Power, water bill payment history would help assess credit worthiness of people, promote financial inclusion, says Cibil MD

Updated: Sun, Mar 24 2013. 09 14 PM IST | Mumbai | Livemint.com

Credit Information Bureau (India) Ltd, or Cibil, the country’s largest collector of databases on borrowers, is in talks with the Reserve Bank of India (RBI) to use people’s payment history on electricity, water and fixed line telephone bills to help banks assess their credit worthiness.

The talks are preliminary, Cibil managing director Arun Thukral said, adding that consultations with multiple regulators and the ministry of finance are required before the agency can go ahead with the plan.

“Utility data should be allowed because it could help in financial inclusion as people paying their bills on time are likely to be financially disciplined, which means banks can offer them a savings account initially and a loan in the future,” Thukral said in a interview on Friday.

Gathering data from utilities could also be a challenge because the Credit Information Companies (Regulation) Act 2005, which governs companies like Cibil, was drafted keeping in mind only data-sharing with banks and not with other companies.

For example, Cibil is also helping telecom companies like Vodafone India Ltd and Reliance Communications Ltd to analyse data to help these companies target offers to customers based on their credit worthiness.

However, TRAI (Telecom Regulatory Authority of India) regulations forbid companies from sharing their customer phone numbers and hence Cibil has had to use customer names and an identity like a PAN card number or address to give these companies a summary of their customers’ credit history.

The summary includes a credit score—a three-digit number ranging from 300 to 900—that helps in estimating the likelihood of loan repayments. A score closer to 900 indicates a borrower is least likely to default.

Banks have been accessing the scores since 2007 and are increasingly dependent on them to check individual credit history before lending.

“The telecom companies use our data to decide on whether to increase customer credit limits and also to find out which pre-paid customers can be offered a post-paid connection,” Thukral said.

Telecom companies in India are struggling to convert pre-paid customers to post-paid offers because the later give more revenues per user and tend to stick to their service provider for a long time. More than 90% of India’s 893 million mobile customers use pre-paid services.

Launched in 2004 with four million credit records, Cibil now has 250 million individual records, and 12.5 million credit histories of small and medium enterprises.

As many as 900 banks, financial institutions and non-banking finance companies access Cibil’s records.

Jairam Sridharan, head of consumer lending and payments at Axis Bank Ltd, said using people’s utility data is a good idea in India where formal credit penetration is low. However, regulatory approvals won’t be easy to come by, he added.

“Formal credit history in India is thin but using utility data can make it more useful because informal credits like rentals, insurance premiums and post-paid telephone bills will add value to the existing information,” Sridharan said.

“However, credit bureau data users can partake only that much information that they share. So, both banks and utility companies must agree to share the same kind of data, which can happen only after regulatory permission,” he said.

Cibil data shows that 20% of the enquiries made by credit institutions related to new car loan applications in the quarter ended December, the single-largest loan component. Credit cards, for which 40% of the enquiries were made in 2008, has come down to 18% as Indian banks clamped down on unsecured credit due to rising non-performing loans post 2008.

From a peak of 27.55 million in March 2008, outstanding credit cards dropped to 18.53 million in October, RBI data show.

The share of first-time borrowers increased to 50% in 2012 from 35% in 2006, Cibil said.

“Borrowers are also getting younger. In November, 53% of the credit applicants were below the age of 35, with Bangalore’s mostly IT employed population being the youngest group applying for new credit,” Thukral said.

First Published: Sun, Mar 24 2013. 05 54 PM IST

Source : http://goo.gl/CCDnh