Rachel Chitra | TNN | Updated: May 16, 2018, 09:51 IST | Times of India
BENGALURU : Are banks gearing up to reward you for good behaviour? After Bank of India (BoI) and Bank of Baroda (BoB) announced such measures, IDBI Bank on Tuesday said that it will reward good borrowers by giving them differential pricing on their home loan interest rates based on their Cibil scores.
According to Cibil COO Harshala Chandorkar, this could point to a larger trend of “loan interests more aligned towards a carrot-and-stick policy – where good borrowers can reap the benefits of their financial prudence and bad borrowers get weeded out or have to pay steeper rates”.
With all four credit bureaus in India – Cibil, Equifax, Experian and CRIF Highmark – looking at wider coverage and criteria, from whether you paid your electricity bill on time to whether your parents paid off for the bike they got you in college, this score could affect your loan prospects.
In the last few years, with non-banking financial companies (NBFCs) and micro-finance institutions also sending information on borrowers to credit bureaus, lenders now have a wider and more comprehensive data set to assess. This could further widen as Cibil is currently in talks with telecom regulator Trai for access to data on prepaid recharges, and other agencies for utility bill payment history.
Banking analyst Hemindra Hazari said, “The whole point of Cibil assessing a customer’s data is that at some point it should translate into benefits. Corporates are always being graded on their term loans, unsecured debt and convertibles, AAA or BB++ rating, and that gives a better picture of their credit worthiness.”
In IDBI Bank’s case, it will be offering loans at 5-15bps (1 percentage point = 100 basis points, or bps) cheaper for customers whose Cibil score is above 700. A credit score normally ranges between 300 and 900 – based on credit behaviour and repayment history. Therefore, the higher the score, the more the chances of securing a fresh loan. IDBI Bank ED Jorty Chacko said, “We are keen to provide all aspiring consumers with access to credit. But while doing so, it is important to reward those consumers who have exhibited consistent credit discipline through timely payments and responsible credit management.”
But with many customers unaware of the role credit bureaus play and whether decisions taken earlier in life can come back to haunt one, Hazari said, “I am concerned about the privacy of our data. In India, there is a very low premium on methods employed for data collection and aggregation. And also, many a time, your consent is not required before financial institutions share additional sets of information over and above what is mandated.”
Lenders prefer to offer home loans to individuals who have a credit score in excess of 750.
Nikhil Walavalkar | May 16, 2018 09:46 PM IST | Source: Moneycontrol.com
Issuance of a credit card marks the entry into the world of credit for most millennials. The journey that starts with a credit card generally peaks when one opts for a home loan, thanks to sky-high home prices. Obtaining a home loan at an attractive rate is a task for many. But they forget that if one uses a credit card prudently, it can help strike a better home loan deal. Here is how it works.
Lenders prefer to offer home loans to individuals that have a credit score in excess of 750. This score is not built overnight. If a borrower has been repaying the loan on time, it can help build a credit score over a period of time. Here is how your credit card usage aids in building a credit score and obtain a home loan at an attractive rate of interest.
Timely repayment of outstanding
Credit cards allow you to access funds without interest for a stipulated period of time, if you pay the entire bill before the due date. “Failure to pay the bill in full attracts interest but also harms your credit score,” Satyam Kumar, co-founder and CEO of LoanTap Financial Technologies, said.
He advises paying all credit card dues in full before the due date to ensure that the credit score goes up. If possible use standing instructions on your saving bank account, so that the lender debits the bill from your account. If you pay the minimum amount due, even though the banker is not treating it as a default, credit score companies do not take it positively.
If you miss your bill payment once in a while by a couple of days, it may not kill your credit score. But avoid repeating such instances a few months before applying for a home loan.
Credit utilisation ratio
“Keep your credit utilisation ratio low at around 30 percent,” Kumar stated. For beginners, it stands for how much credit one uses out of the allotted limit. It is calculated for each card separately as well as jointly for all cards. For example, if you have two credit cards – A and B – with a credit limit of Rs 1 lakh each. and spend Rs 60,000 and Rs 2,000 on these cards, respectively. Then the credit utilisation ratio for Card A and B stands at 60 percent and two percent, respectively. Jointly it stands at 31 percent. Had the user spread this expenses equally on both cards he would have been closer to the 30 percent mark.
Once in a while this number may go up. But consistently high numbers shows a credit hungry behaviour. If you are using a credit card with low limits, it makes sense to ask your banker to increase the credit limit on the credit card. This will ensure that your credit utilisation ratio falls, if you keep spending a similar amount.
Longevity of your credit card accounts
Credit score gives more weightage to older credit accounts. Longer the repayment history, better is the credit score. Avoid closing your old credit card accounts. Keep using the old credit card and repaying it before the due date helps the credit score.
Personal loans on credit cards
Many prefer to avail personal loans on their credit card to avoid paying a high rate of interest. This move blocks their credit card limit. The borrower is also expected to repay the loan on time. Late payments or defaults on these loans also pull down one’s credit score.
“Be diligent while repaying these personal loans as they are high-cost credit compared to other secured loan options. Also, failure to repay leads to a fall in credit score,” Vishal Dhawan, Founder and Chief Financial Planner at Plan Ahead Wealth Managers, said.
If there is a dispute with the lender pertaining to a transaction or charge on the credit card, do not ignore it. “Sometimes individuals tear the credit card as they are unhappy with the service. However, it does not help. One has to ensure there is no outstanding and formally close it,” Dhawan added.
Opting for a one-time settlement or not paying it up will lead to adverse remarks in your credit report. “If you spot a disputed transaction or a charge on your credit card, it makes sense to speak with the card issuer and follow up for an amicable resolution,” Kumar said.
If you use your credit card prudently, there is a high possibility that your credit score will remain good and you will be offered a better deal.
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.
There are many easy ways to quickly improve your credit history and score. But if you are not careful, these measures may even jeopardise your financial security
Shaikh Zoaib Saleem | First Published: Mon, Nov 27 2017. 12 37 AM IST | Livemint.com
If you need a loan to buy something you cannot fund immediately, you approach a financial institution—typically a bank or a non-banking financial company (NBFC). When you do that, the financial institution runs a background check on you, from its own database (if you are an existing customer) and also from a credit information bureau. The credit information bureau is authorized by the Reserve Bank of India (RBI) to gather information on loans and borrowers from banks and analyse it to arrive at a score of creditworthiness of an individual. If your creditworthiness is good, you would get a loan relatively easily and at better terms. If not, either the loan will be rejected or you will be charged a higher interest rate. This is especially true in case of personal loans. The institutions’ decision to lend is based in large measure on the credit score and the credit report.
What is a credit score?
It is a number based on your credit report, which is a summary of your past and current borrowing and repayment history. If you were regular with repaying loans, including your credit card bills, your credit score is likely to be higher. This score helps banks assess your loan repayment capacity and your chances of defaulting on it. “Credit score is derived from the credit history of an individual. A consumer needs to have a minimum of 6 months of repayment track record on a loan or credit card or closed credit accounts less than 2 years old before a credit bureau can generate a credit score,” said Hrushikesh Mehta, vice-president and head of direct-to-consumer business, TransUnion CIBIL. A credit score is created as your lending and repayment relationship with financial institutions evolves. However, if you are new to credit, here are some ways you can quickly start to build a credit score.
Credit cards or personal loans
If you are new in the workforce, you can start by getting a low-limit credit card from the bank where you have a salary account, said Sumit Bali, senior executive vice president and head-personal assets, Kotak Mahindra Bank Ltd. “Based on their income, banks can give them a card with low limit. Use that card sensibly and build a credit history,” he said.
In the past, people considered taking personal loans to build their credit score. However, with a personal loan you will necessarily have to spend your money in paying the interest, whereas with credit card repayments within the stipulated time, you do not have to shell out extra money. For slightly older professionals, about 35 years old, credit history is not much of a worry if their bank account status and average balance are good, and investments and tax returns are in place. They “don’t really need a credit card to prove credit worthiness. Any bank would sensibly look at it and take a call,” Bali said.
Peer-to-peer (P2P) lending platforms are an emerging option for creating and enhancing your credit history. The RBI has recognized these platforms as special category NBFCs and has mandated them to share lending data with credit information bureaus. “Once the P2P lenders receive their licence, they will be able to begin data submission. Once that happens, P2P lending will become a viable option in helping one build a credit score,” said Mehta. However, in this case too, you will have to pay an interest on the borrowed amount.
In some cases, especially where customers have a long relationship with their bank, the banks may also look at own data to determine creditworthiness, Bali added. “Credit score by and large is a good indicator but it may not be the only indicator,” he said.
Alternative credit scoring
Evaluating someone who has never taken a loan can be difficult. This is where alternative credit scoring comes in. Here, instead of relying on a credit score, lenders consider your transactions and behavioural data like bill payments, online buying behaviour and information from your social media platforms to understand your repayment capacity.
“Often people are refused big-ticket loans like a home loan for the lack of credit history, even if their finances are in order,” said Abhishek Agarwal, chief executive officer and co-founder, CreditVidya, a credit advisory that also works on alternative credit scores.
While the RBI-regulated credit bureaus are currently not allowed to use alternative data for credit scoring; in other developed markets parameters like utility bill payments, insurance premium payments have been used for credit scoring (read more on it here.
However, financial institutions including top public and private sector banks and NBFCs in India, have started using alternative data in multiple verifications and validations across the credit value chain, Agarwal said. “Innovative offerings like pre-approved offers or instant loans are leveraging alternative data from multiple sources to provide seamless customer experience,” he said, adding that leveraging alternative data for credit risk assessment of secured loans is still distant. Banks use the alternative scores “in conjunction with other things, like data that you have about the customer. This is happening for personal consumption products like credit cards and salaried personal loans. We are putting it to use but what is the outcome from that, it is too early to say,” Bali said.
While credit cards and loans help to build a credit history and score, caution needs to be exercised. If used carelessly, these can put you in a debt trap, and ruin your credit history too.
Not just that, you should also keep your digital and transactional behaviour in check, as going forward more and more data could be used to assign you a credit score.
Source : https://goo.gl/m7Ns7g