In a significant move towards enhancing the accuracy and timeliness of credit information, the Reserve Bank of India (RBI) has mandated a shift from the traditional monthly reporting of credit data to a fortnightly cycle. This new regulation, effective from January 1, 2025, requires Credit Institutions (CIs) to report credit information to Credit Information Companies (CICs) like CIBIL every two weeks. The change aims to ensure a more up-to-date reflection of borrowers’ financial health, benefiting both borrowers and lenders.
The Importance Of CIBIL Scores In Financial Health
CIBIL scores, a critical metric used by lenders to evaluate the creditworthiness of borrowers, are influenced by various factors, including repayment history, credit utilisation, and the frequency of credit inquiries. With the RBI’s new mandate, the impact of these factors on one’s CIBIL score could be reflected more swiftly, potentially benefiting those who consistently manage their credit well.
Impact Of Fortnightly Credit Score Reporting On Borrowers
For borrowers, the primary benefit of this change lies in the faster reflection of loan repayments and other credit activities on their credit reports. Under the monthly reporting system, it could take up to a month for changes in a borrower’s credit behaviour to be updated in their CIBIL score. With fortnightly reporting, this timeframe is cut in half, providing a more accurate and timely representation of a borrower’s credit standing. This can be particularly advantageous for individuals who are actively trying to improve their credit scores by paying off debt or making timely payments.
Moreover, for those who may be struggling with high levels of debt, the frequent updates could provide earlier warnings of deteriorating credit health, allowing them to take corrective measures sooner.
Benefits For Lenders
Lenders stand to gain significantly from the new reporting schedule as well. Access to more recent data will enable them to make better-informed lending decisions. With more frequent updates on borrowers’ credit activities, lenders can more accurately assess credit risk, reducing the likelihood of lending to individuals who may become over-indebted. This is crucial in maintaining a healthy credit market, where the risk of defaults is minimised, and the financial system remains stable.
Compliance And Penalties With These New Proposed Changes
The RBI has set clear guidelines for compliance, stating that CIs must report credit information by the 15th and last day of each month, with data submission to CICs within seven calendar days. This timeline has now been revised to five calendar days, emphasising the importance of timely data processing. CICs, in turn, are required to ingest this data within five calendar days of receipt. Failure to comply with these regulations will result in penal actions as per the provisions of the Credit Information Companies (Regulation) Act, 2005 (CICRA, 2005).
RBI’s Initiative To Combat Unauthorised Digital Lending Apps
In an additional move to enhance the safety and reliability of digital financial transactions, the Reserve Bank of India (RBI) has announced plans to set up a public repository for digital lending apps. This initiative, revealed by RBI Governor Shaktikanta Das during the monetary policy review on August 8, aims to curb unauthorised practices in the digital lending space.
The RBI’s approach to tackling these unauthorised apps includes requiring regulated entities to report their digital lending applications to the RBI. This reporting mechanism is expected to play a significant role in mitigating the risks associated with unverified and potentially fraudulent digital lending platforms.
Recent Monetary Policy Committee Decisions
In tandem with these regulatory updates, the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 6.5 per cent. This decision, made by a majority vote of 4:2, reflects the MPC’s ongoing focus on balancing inflation control with economic growth. Additionally, the six-member panel chose to maintain a ‘withdrawal of accommodation’ stance, implying that all other rates, including the Standing Deposit Facility (SDF), Marginal Standing Facility (MSF), and Bank Rate, will remain unchanged.
A new feature called “Delegated Payments” is also being proposed for the United Payments Interface (UPI), allowing a primary user to authorise another person (secondary user) to conduct UPI transactions from the primary user’s bank account, up to a specified limit. This eliminates the need for the secondary user to have their bank account linked to UPI, thereby expanding the accessibility and adoption of digital payments.
FAQs
Yes, a CIBIL report is mandatory for most lenders when assessing an individual’s creditworthiness before approving loans or credit cards.
The Reserve Bank of India (RBI) does not have a specific credit rating requirement for itself. However, entities regulated by the RBI, such as banks and financial institutions, often need to meet certain credit rating criteria for various financial operations, such as issuing bonds or accessing certain facilities. These ratings are typically provided by accredited credit rating agencies like CRISIL, ICRA, CARE and more.
CIBIL (TransUnion CIBIL), along with other credit information bureaus like Equifax, Experian, and CRIF High Mark, is regulated by the Reserve Bank of India (RBI) under the Credit Information Companies (Regulation) Act, 2005 (CICRA).
Yes, a person can have no CIBIL score. This typically occurs when an individual has no credit history, meaning they have never borrowed money or used credit.
No, credit rating is not mandatory for individuals in India. Credit rating is primarily used for assessing the creditworthiness of corporations and government entities, not individuals. However, individuals do have a credit score, which is generated by credit bureaus based on their credit history.
No, the RBI does not primarily regulate credit rating agencies. The Securities and Exchange Board of India (SEBI) is the primary regulator for credit rating agencies in India. However, the RBI does have some oversight over credit rating agencies in specific areas related to the banking and financial sector.
Anyone with a grievance against any department of the Reserve Bank can submit their complaint to the CEP Cell via email at crpc@rbi.org.in.
CIBIL scores are generated and controlled by TransUnion CIBIL Limited, based on credit information provided by various financial institutions and banks.
