Starting January 1 next year, banks and credit information companies such as CIBIL are supposed to update their credit information every fortnight instead of once a month. This will help banks assess borrowers’ risk profile more accurately.
The Reserve Bank of India (RBI) recently instructed banks and credit information companies (CICs) to update the credit information they collect at shorter intervals, i.e. once a fortnight rather than once a month. The instructions were issued on Thursday via a notification after the monetary policy statement by RBI Governor Shaktikanta Das. The central bank has kept the repo rate unchanged at 6.5 per cent for the ninth consecutive time.
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Currently, banks are supposed to report to credit information companies (CICs) such as CIBIL and Equifax once a month. Governor Das on Thursday proposed to increase the frequency of reporting credit information to once a fortnight.
As a result of this, borrowers will benefit from faster updation of their credit information, particularly when they repay their loans. The banks, at the same time, will be able to make better risk assessment of borrowers.
It is noteworthy that banks use credit information to evaluate the creditworthiness of borrowers. For instance, a borrower who has a high credit score (also known as CIBIL score), say above 750, is considered creditworthy, and banks do not have any qualms about lending to such an individual.
Conversely, borrowers who have a low credit score, say a CIBIL score of 550, are considered riskier by banks.
When the latest instructions are implemented, this information (credit score) will reflect more recent inputs.
The RBI’s notification states that the Credit Information Reports (CIRs) provided by CICs reflect more current information so that it enables banks to make informed credit decisions.
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Key directions given by the RBI notification:
1 Updating every fortnight: CICs and banks will keep the credit information collected and maintained by them updated regularly on a fortnightly basis (i.e., as on the 15th and last day of the month) or at shorter intervals.
2. Submission of information: The fortnightly submission of credit information by banks to CICs will be ensured within 7 days of the relevant reporting fortnight.
3. Ingesting data within five days: Credit companies are supposed to ingest credit information data received from banks as per their data acceptance rules, within seven days of its receipt from the banks. This will now be revised to five days after its receipt.
4. Not adhering to rules: Credit companies will share a list of the banks which do not adhere to the fortnightly data submission timelines with the RBI (Department of Supervision) at half-yearly intervals, i.e., March 31 and September 30 each year.
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These instructions will come into force on January 1, 2025. However, banks and CICs are encouraged to implement these instructions as soon as possible but not later than January 1, 2025.
