STAFF REPORTER | MADURAI | UPDATED: APRIL 22, 2018 04:14 IST | The Hindu
Coming to the aid of a law student who sought an educational loan from a nationalised bank, the Madurai Bench of Madras High Court has directed the bank to consider the loan application and disburse the loan within two weeks.
Justice M.S. Ramesh, hearing the plea, observed that nationalised banks had time and again rejected loan applications based on the CIBIL reports of family members.
The student being the principal borrower, the status of parents and family members could not be a criteria for rejecting the application. CIBIL score should not be a ground for rejection of an application. It was a wilful disobedience of various orders passed by the court in this regard, making this case liable for contempt of court orders. The Head of Indian Bank, which had rejected the loan, was directed to issue necessary directions to all its branches in the State to refrain from rejecting educational loan applications on such grounds.
The court was hearing the case of M.Hariharasudhan, a law student of Prist University, Thanjavur, who had sought an educational loan of Rs. 70,000 from the Indian Bank. He moved the High Court after his application was rejected based on his father’s low CIBIL score.
S Murlidharan | Mar 12, 2018 14:38:24 IST | First Post
Individuals are supposed to fret and agonise over their credit score awarded by CIBIL (Credit Information Bureau (India) Limited) so that they are not in disfavour with the lending banks and institutions. All payments made by them are passed on to CIBIL which together with three other companies in the same business keeps a running score of the credit behavior of individuals. While the efficacy of the regime is debatable, for which this is not the occasion, what raises eyebrows is the absence of a similar regime for corporates who are by far the heaviest borrowers and defaulters.
What CIBIL does is brought out in its blurb: “TransUnion CIBIL is India’s leading credit information company and maintains one of the largest collections of consumer information globally. We have over 2,400 members–including all leading banks, financial institutions, non-banking financial companies and housing finance companies–and maintain credit records of over 550 million individuals and businesses. Our mission is to create information solutions that enable businesses to grow and give consumers faster, cheaper access to credit and other services.”
To be sure, there is a regime for corporates as well—CRISIL—but that is extremely limited. CRISIL (Credit Rating Information Services of India) and its competitors are credit rating agencies whose services are used by corporates episodically, i.e. when they issue bonds, invite deposits or mobilise funds through commercial papers. To be sure again, it is not as if once these episodic events take place, the role of the credit rating agency is over; it does keep a vigil on the credit behavior of the borrower till the instrument through which funds were mobilized is redeemed or discharged. But the vigil kept by the credit rating agency is not as comprehensive, continuous and all-encompassing as it is for individuals under the CIBIL regime.
Time has come for the banking regulator, the Reserve Bank of India (RBI) to mandate constant monitoring of corporate banking behavior that if anything is more rigorous and thorough than the one for individuals given the enormous stakes involved.
The Punjab National Bank (PNB) fraud perhaps might have been pre-empted had there been a regime such as the one outlined above. Why did PNB scam happen? It happened because Nirav Modi had banking dealings with PNB and not with Axis or Union Bank, to wit. And the RBI has said banks should not entertain requests for Letters of Credit (LoC) unless the borrower had banking relationship with them.
Thus arose the need for an intermediary instrument—letters of undertaking (LoU). LoU assures the stranger-banks, as it were, that the familiar-bank vouchsafes for the creditworthiness of the unknown credit-seeker. Modi got the requisite LOUs forged in collusion with two corrupt Mumbai branch employees of PNB and got the credit from a clutch of Indian banks having foreign branches including Axis and Union Bank. The charade of LOU need not have been enacted had the banks had a CIBIL-like regime under which the banking behavior of Modi with PNB would have been shared with Axis and Union Bank.
Banks in India do come together and share vital information when they form themselves as a syndicate when the loan asked for is too big for their boots in terms of funding required and risks involved. But what is required is a more transparent, general and accessible information regimea la CIBIL.
The comprehensive CIBIL regime for individuals in juxtaposition with absence of a similar regime for corporates smacks of penny-wise pound foolish behaviour. It also gives credence to the long-held view that when you borrow in thousands you are in trouble with the bank but when you borrow in millions or billions, the bank is in trouble. Banks can correct this skew by putting in place a robust monitoring regime of corporate financial behavior that is accessible on real-time basis by everyone having a skin in the game.
(The writer is a senior columnist. He tweets @SMurlidharan)
A high credit score certainly boosts the chances of your loan approval. However, if you fail to qualify on other parameters, even your high credit score will not help.
Published: March 14, 2018 4:37 PM | Financial Express
A high credit score certainly boosts the chances of your loan approval. However, it doesn’t guarantee it. Credit score is just one of many parameters used for credit approval by lenders. If you fail to qualify on other parameters, even your high credit score will not help. Here are the some of the most common reason why loan applications are rejected despite a good credit score:
1. Minimum income eligibility: Most lending products have minimum income criteria for loan applicants. Lenders may also set varying income eligibility criteria depending on your location, i.e. metro, urban, semi-urban and rural areas. As this is often the first filter that lenders apply for processing loan applications, those who fail to meet this criterion are usually rejected outright, even without the consideration of other eligibility factors, such as credit score and EMI affordability. As this criterion may vary across lenders, visit online lending marketplaces to find out the loan options available to you basis your monthly income.
2. Age: Most lenders cap the age of loan applicants at 60 years. This is because monthly incomes usually dip after retirement, which increases of the risk of default. Some credit products may also cap the age by which the repayment has to be completed. For example, most lenders require the borrowers to complete their home loan and loan against property repayment before they turn 70. Those who fail to meet these requirements may have their loan applications rejected. If you too are approaching your retirement age, improve the chances of loan approval by making your spouse or employed children your co-applicants.
3. Frequent job changes: Nowadays it is quite common to frequently change jobs for better career prospects and higher income. However, frequent job changes is considered as a sign of an unstable career and hence, job hoppers are regarded as less creditworthy, especially for longer tenured loans like home loans and loan against property. If you too are planning to avail a longer tenured loan, avoid job changes for some time.
4. Guarantor of other loan: Whenever you become a guarantor to someone else’s loan, you become equally liable for its repayment. Hence, during fresh loan application, lenders will reduce your loan eligibility by the amount of outstanding loan guaranteed. This might lead to the rejection of your loan application. As banks do not allow changes in guarantor(s) unless requested by the borrower himself, ask the primary applicant of the loan to find another guarantor as your replacement.
5. High FOIR: Fixed obligation to income ratio (FOIR) is the proportion of your total income which goes out as EMIs (including the EMI for the new loan application) and other repayment obligations like house rent, insurance premiums, etc. As lenders prefer to lend to those with FOIR of 40-50% or lower, those exceeding it may have their loan application rejected. Hence, those with higher FOIR should prepay their existing loans in whole or part to increase their loan eligibility. Alternatively, opt for lower EMI for the new loan if that contains your FOIR within 40-50%.
6. Job and employer’s profile: Many lenders also consider your job description and/or your employer’s profile while processing your loan application. Lenders prefer government employees and those working with top corporates and MNCs the most due to their higher job certainty, whereas those working with lesser-known or financially-strained companies are less preferred. Employees with hazardous job profile have lower loan approval chances. Consider loans from NBFCs if banks reject your loan application due to your job or employer’s profile.
(By Naveen Kukreja, CEO & Co-founder, Paisabazaar.com)
By Arshad Khan | Express News Service | Published: 04th March 2018 04:45 AM |
NEW DELHI: In the wake of Punjab National Bank scam and numerous other banking frauds detected in the days followed, it became clear that the process of granting loans to borrowers differs for different class of borrowers. While it becomes a nightmare of paper work for borrowers falling in the CBIL minus and CIBIL category, banks mends its ways for the people falling in the CIBIL plus category.
Banking experts say the approach of granting loan to everyone needs to be standardised. Ranjeet Mudholkar, vice-chairman and CEO, Financial Planning Standards Board India, said that banks need to make Cibil score of corporate bodies, mainly the listed ones, public, for the betterment of account and share holders. “Imagine a situation when you know in advance the credit score for Kingfisher, it will not only help rationalise the stock movement of the share holder but also bring a lot of stability in the system. The account holders will also know where their money is going,” Mudholkar said.
He adds that banks will have to become transparent in their working and there is a need to promote financial literacy among account holders. However, the two immediate requirements for a better banking system are far from international standards. In developed nations, accounts holders are much more aware as what is happening with their money, beside having easy available of CIBIL scores.
Another stark contrast is that many account holder in the India are not necessarily its share holder, hence they don’t see a need to know their bank’s working. Financial institutions, too, differentiate between an account holder and a share holder when it comes to revealing information. Even though, account holders are less likely to lose their deposit money in the whole scam episode, there is always a fear that there earning might get impacted, which, has an impact on every stake holder.
It was reported that post the illegal transfer of around $1.8 billion of taxpayers’ money from a single PNB branch in Mumbai, many account holders of the bank closed their fixed deposits in fear of the bank shutting down and they losing their money. A PNB clerk in a Delhi branch said the number of new account openings has seen sharp decline. Share price, too, continues to touch new lows.
But will things change in the way banks function. Mudholkar says that things are pretty much in place for middle class borrowers but for UHNIs, he hasn’t seen change in Bank’s approach yet. “Not taking ratings into consideration while granting loan to corporate bodies should stop and certain guidelines should be followed by banking official. In the absence of this, there will always be a crook who will try to take advantage of an outdated system,” he said.
When checked with a banking official whether they follow the standard norms while dealing while HNIs, she said sometimes they break limited norms while dealing with them as they are ‘valuable’ customers.
“A trust is built between them and bank. At the end of the day we do business and in most cases we know that the money is secured but problem comes in when there are wrong intentions,” she said.
RADHIKA MERWIN Interview with Harshala Chandorkar, COO, TransUnion CIBIL
Published on February 25, 2018 | The Hindu Business Line
Arguably no single data point determines your credit-worthiness, or your prospect as an entity worthy of a consumer loan or a business loan, as your credit score. TransUnion CIBIL is one of four credit bureaus in India that assess you for that. There are currently about 37 crore retail borrowers and about 1.3 crore commercial borrowers on the TransUnion CIBIL Consumer and Commercial bureau. That portfolio also gives it a vantage view of the banking and economic landscape. Excerpts from an interview with Harshala Chandorkar, Chief Operating Officer, Transunion CIBIL:
What is your sense of corporate lending trends, which appear to be recovering?
The NPA woes of the banking industry in the commercial lending space indicate that the mid-corporate and larger SME segments have taken the biggest hit. TransUnion CIBIL Commercial Data analysis highlights a significant chunk of accounts that are bad in one bank but not bad in another. The latest FIBAC report on Productivity in Indian Banking states that a significant part of latent NPAs could slip in the next few quarters. The revenue pool of mid and large corporates will probably stay subdued for the next 4-5 years due to stress in the portfolio.
The banking industry needs to invest in new credit models for commercial customers that rely on commercial credit information from TransUnion CIBIL and analytics to complement banks’ capabilities in credit assessment and detecting early warning signals.
What’s the outlook on retail credit? Consumer loans seem to be driving overall lending.
With the availability of credit information and progressive policies on financial inclusion, retail lending has grown profitably. Over the past five years, there has been an estimated 16 per cent annual growth in disbursement and over 30 per cent annual growth in bureau enquiries. At the same time NPAs and delinquencies on retail lending have been historically low.
The nature of retail credit is changing rapidly in India as the share of products in new accounts opened has evolved, with gold loans and consumer durables gaining significant volumes and accounting for almost 50 per cent of all new accounts opened. This growth has been accompanied by a significant drop in ticket sizes as financial institutions are becoming more and more willing to extend low-value loans. With certain other retail products, the ticket sizes have actually increased, prominent among them being personal loans — indicative of the increasing credit-willingness of the Indian borrower and a supply-side push — and home loans and auto/two-wheeler loans – indicative of the overall increase in the values of the underlying assets funded. In addition, the share of youth in retail credit is growing: millennials’ share of accounts opened has increased to 40 per cent.
How do you see the bureau evolving in the near future?
The next stage of evolution of India’s credit information infrastructure will be the usage of credit information data, insights and solutions for further expanding access to credit, driving credit penetration and financial inclusion.
Demonetisation has paved the way for a cashless and digitised economy. Bureau solutions for instant verification and ‘decisioning’ are paving the path for driving digitised, quick, easy and affordable access to finance. Verification solution enables credit institutions to authenticate the identity of the consumer in real time at the point of application. As a result consumers are able to get the loan approval within minutes of applying. Yet another advantage is cost-effectiveness while establishing a consumer’s identity. Bringing down this cost can help banks and credit institutions make lending decisions quickly, at cheaper KYC costs, and thereby increase business growth and credit penetration.
The potential of alternative data usage for credit decisions is another significant domain. To expand and increase the breadth of information for making lending decisions even more comprehensive, we are in discussions with regulators to allow for contribution of ‘post-paid’ information on telecom customers. Several World Bank studies have indicated that inclusion of reporting of non-financial payment data (alternative data) proves extremely beneficial for making lending decisions, specifically for the segment that does not have access to credit. With access to affordable credit, new credit consumers are able to build assets. Those financially underserved consumers who have a positive payment records in non-financial obligations like telecom will have the ability to access affordable credit.
The extension of the credit information bureau to cover a larger population will enable a majority of Indians who are self-employed, or employed in the unorganised sector, to get a credit history and enhance their eligibility for credit from banks. Incorporation of telecom and electricity bill payment records into the credit information bureau can unleash this enormous potential to extend the penetration of banking in India. There is compelling business logic for utility and telecommunications firms to begin fully reporting customer payment data to credit bureaus.
But only a few banks use credit score to offer differentiated rates to customers.
Risk-based pricing in still at a nascent stage in our country. Both in the commercial as well as retail segments, pricing offers an opportunity to strengthen performance in the short term. Some progressive lenders have initiated a disciplined approach to risk-based pricing and this could improve banking profitability by 20-30 basis points. Further, at the bank level, banks need to deploy models to estimate customer price elasticity to introduce value-based pricing.
Risk-based pricing of loans helps both the lenders and borrowers alike: the lender can assess the risk value of a customer before deciding to offer a loan at a particular rate, while customers with a higher CIBIL score benefit by getting lower rates as compared to customers with a low scores. The benefits thus ensure that customers work towards keeping their scores and credit-worthiness high.
Paytm will give a rating to users on its platform based on their digital transactions online.
M Devan | Monday, February 26, 2018 – 09:04 | The News Minute
The Digital India push may receive a fillip through the efforts by Paytm to launch its own credit score Paytm Score, very much on the lines of the CIBIL credit rating that has been the only parameter on which the Indian banking system has been approving loan applications.
The record of digital transactions users have carried out within the digital payments major’s ecosystem will be the basis on which it will make the evaluation of creditworthiness of an individual. Paytm has its e-wallet, Paytm Mall and also the booking platform across which customers use their digital payment modes to make payments.
These transactions will form the basic data which will be fed into the appraisal system and the ratings given. These ratings can then be shared by Paytm with lending agencies with whom it has already entered into partnerships and it has already added to its stable, a lending vertical Creditmate, which it acquired organically a few months ago.
Apart from this, Paytm has an agreement with ICICI Bank for offering short-term credits on an interest-free basis and these loans are sanctioned without any delay.
The credit rating program may itself become a financial product for Paytm and it is learnt that it has offered this to some online lending agencies and NBFCs interested in moving away from CIBIL.
The demonetization move by the Indian government, in late 2016, has helped Paytm expand its business and that has, in turn, brought in high profile investors, such as SoftBank. With that backing, the company is now able to focus its attention on growing all the verticals under its management.
With Paytm Mall and Paytm Payments Bank already doing well Paytm has expanded into new segments such as insurance, online grocery delivery with BigBasket, online ticket booking, initiatives to set up a money market fund, the partnership with PVR and more. The firm might want to evolve into a large conglomerate of services.
It helps to know exactly how a single missed payment can affect your finances and your CIBIL Score.
By Hrushikesh Mehta | Feb 23, 2018 10:10 AM IST | Source: Moneycontrol.com
If you ever wondered whether a single failed credit card payment can pull down your entire credit score, the answer is YES. While a failed payment may be a mistake or the inability to pay (we all go through financial difficulties), lenders view this negatively and it can impact your access to credit in the future. Note that this doesn’t just apply to your credit cards; it holds true for add-on cards, where you’re accountable for others’ spending habits.
Impact on your finances and your CIBIL Score
It helps to know exactly how a single missed payment can affect your finances and your CIBIL Score.
Firstly, always remember that the interest on your missed payments (including the late payment fee) is compounded daily. Monthly interest rates on credit cards can range from 3-4% per month on the outstanding balance (principal, interest and late fees). So, even though you think you missed your payment by a day or a week, your interest liability may be larger than you anticipated. Paying just the minimum due or not paying for a few months will see your amount due balloon significantly.
Let’s take an example of only paying the minimum due for 6 months. On May 1, you make a purchase of Rs. 1,000 on your credit card that has a 3% per month interest rate. You then choose to only make minimum payments due (5% of the outstanding amount at the end of the month) for the next 6 months and spend no additional money on that credit card.
When clearing your balance at the end of 6 months (December), you will end up paying Rs. 1,560 — 56% more than the original amount spent.
Even without making any more purchases on the card, opting for minimum payments will stretch your repayment period to almost 9 years!
If you choose not to pay minimums, not only will you be delinquent and affect your CIBIL Score, but you will end up paying more than double the amount you had spent.
This is why it’s critical to read the fine print whenever you avail of a credit card, and it’s even more important to always pay on time.
On the other hand, your CIBIL Score is calculated based on the last 24 months of your credit history, and the four major factors that can affect your Score are as follows:
A missed payment can impact your score for as far ahead as the next two years. While it will remain visible on your credit report for 36 months, remember that it will always be a part of your credit history. This is why a credit score is like a reputation that takes years of discipline and patience to build, and just a single instant to get impacted.
Rebuilding your Score
There are ways to get back on the road to good credit health. Here are two ways to help build your credit score:
1. Ensure you clear outstanding dues on credit cards fully. Part-payments or minimum payments indicate difficulties in repaying dues. What’s more, if your amount overdue snowballs it will not only negatively affect your CIBIL Score but you also risk falling into a debt trap. Also, if a pending credit card payment is reported as “Settled” or “Written off”, this will affect your access to credit in the future.
2. If you have amounts pending on multiple cards, taking a personal loan at a lower interest rate to pay off your cumulative dues can be an economical option to avoid ballooning debt balances. Alternatively, you can borrow money against your gold, take a loan against your fixed deposit (without breaking it), or even get a loan of 50-80% of your asset value from investments in LIC, mutual funds and securities. The lower interest rate will make for more manageable monthly payments without the problem of an exponentially ballooning debt burden.
While these measures help rebuild your credit health after missed payments, adopting a proactive approach to financial discipline is always more prudent:
1. Make sure you always pay on time.
2. Don’t take on more debt than you can reasonably afford.
Why maintaining a high CIBIL Score is important
A higher credit score can lead to better loan offers at competitive interest rates primarily because lenders are keen to reward consumers who have demonstrated financial discipline. In addition, emergencies don’t always announce themselves before they arrive and having a high CIBIL Score will ensure that you are able to secure funding quickly (especially in a medical emergency). So, while missed payments can negatively affect your score, regular payments and credit-healthy habits can improve it.
The writer is VP & Head – Direct to Consumer Interactive of TransUnion CIBIL