CREDIT INFORMATION BUREAU (INDIA) LIMITED
CIBIL Link
Chairman’s Desk
S Santhanakrishnan
Chairman
I am glad to inform you that the much-awaited legislation,
Credit Information Companies (Regulation) Act 2005,
relating to credit information bureaus has been notified by the
Government of India as on 14th Dec ‘06. The Rules &
Regulations have also been framed and notified in the official
gazette. The Act provides for regulation of credit information
companies and facilitates for an efficient distribution of credit
and for matters incidental thereto.
Some of the key features of the Act are:
q The Act stipulates that every existing credit institution shall
be a Member, of at least, one credit information company
within three months of the commencement of the Act.
q Credit information bureaus formed under the Act and duly
registered with the RBI can requisition credit information
from their Members.
q The sharing of such information by a credit institution with
a duly constituted Credit Information bureau, of which it is
a Member, is mandatory. Simultaneously with this Act,
necessary amendments have been made to other laws in
force that bind such institutions to secrecy in regard to the
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Volume I, Issue X, Oct - Dec 2006, Mumbai
information relating to their borrowers.
q In addition to credit institutions, other institutions like
insurance companies, companies providing cellular or
phone services, credit rating agency, etc can obtain credit
information from credit information companies.
q The roles and responsibilities of credit institutions and
credit information companies relating to collection of credit
information, access to and modification of the same,
ensuring security and protection of data, disclosure of
disputed / inaccurate data have been stipulated in the
Rules & Regulations.
Credit institutions have faced operational hurdles for
obtaining consent of borrowers for disclosure of information
to CIBIL. The above Act has removed this roadblock.
A quick update on the CIBIL’s Consumer and Commercial
Bureau. CIBIL Consumer Bureau was launched in 2004 with
a database of 4 million. We now have a database of over 70
million borrower records. The Commercial Bureau was
launched in 2006 and now has a database of over 11 lakh
records. Members are extensively accessing the credit
information reports for evaluating risk. We are glad to say that
these Members are sharing their experiences of reaping the
benefits from the knowledge of applicants’ characteristics,
which has permitted them to price their loans better, easing
selection problems. They feel that the utility of the Credit
Information Reports have increased from the risk
management perspective.
I hope you find this edition of CIBIL Link engaging and as
always, we welcome your feedback to make this newsletter
more informative, interesting and keeping us allied.
CIBIL Link
Education Corner
ROLE OF SME
SECTOR
There is growing
w o r l d w i d e
appreciation of the
fact that Small and
M e d i u m
Enterprises play a
catalytic role in the
development
process of most
economies. SMEs
play a very
significant role in
terms of their
balanced and sustainable growth, employment generation,
development of entrepreneurial skills and contribution to
export earnings. In India, SME sector is the second largest
manpower employer, after agriculture and the output from the
SSI sector alone constitutes 40% share of the value added in
the manufacturing sector and one third of national exports.
SME has become an important sector of the economy with its
noteworthy contribution to the Gross Domestic Product,
Industrial production, employment generation and exports.
As at the end of March 2005 there were around 12.0 million
units – constituting 95% of the industrial units in the country
which produced 80000 items with associated technology
varying from traditional to state-of-art. These units provide
employment to nearly 24.9 million persons, account for 40%
of the value added in the manufacturing sector, 34% of total
national exports and nearly 7% of GDP during 2004-05.
According to the official definition adopted in India since
1998, the investment limit up to Rs. 10 million in plant and
machinery is treated as Small Scale Industries (SSI) unit.
However, in respect of certain specified items such as
hosiery, hand-tools, drugs & pharmaceuticals and stationery
items, the above investment limit in plant and machinery has
been enhanced up to Rs. 50 million. Under MSMED Act, for
Medium Enterprises, the ceiling is up to Rs. 100 million and
the excess of ceiling for Small Scale Industries (Rs. 50
million).
The Tenth Five Year Plan for the Indian economy has set a
target of 8.5% growth per annum in GDP and to bring down
the poverty ratio to 11% over the next decade. The Plan also
noted that achieving and sustaining such ambitious growth
targets would require adequate attention to small and
medium enterprises which have great potential to offer wage
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Volume I, Issue X, Oct - Dec 2006, Mumbai
employment. In order to pursue the growth with employment
agenda, heavy reliance is placed on the SME sector.
Issues relating to the credit flow to the SMEs
 Entrepreneurs experience difficulties in preparing project
proposals because it is a time taking process, which
requires too much data/ information.
 Credit risk in financing this sector seems to be higher
because, there is lack of transparency and openness on
the part of entrepreneurs.
 Delays are seen in every level lending operations such as
submission of the loan application form, project
formulation, project implementation, annual review and
renewal of limits.
 The success rate in rehabilitation of sick units is
unsatisfactory.
 Despite liberalisation and financial sector reforms, the cost
of loans is still high.
 Marketing remains the most crucial issue for the SME
sector as some of the units are very small and so is their
output individually.
 Many unfair practices prevail in banks such as excess
bank charges, delays in credit sanctions, stricter terms
and conditions to name a few.
Financing the SME sector
In recognition of the contribution and vast potential of the
sector in the economy as well as its inherent infirmities,
provision of adequate credit to this sector has continued to be
an element of banking policy, even though economic and the
financial policies themselves have undergone significant
transformation, particularly after the initiation of structural
reforms in1991. With a view to widening the scope of
assistance to SMEs, the process of asset securitisation offers
opportunities to purchase the SME portfolio from originators
and channelise funds to the sector.
Bank procedures have to be rationalized to increase speed
and avoid in-convenience to the borrowers. CIBIL will play a
vital role in this regard. The Credit Information Reports from
CIBIL allow banks to mitigate credit risks more objectively.
The role of CIBIL is to facilitate the flow of credit to under
penetrated SME sector while increasing banks’ profitability
and market penetration via sound credit decisions and
reducing non- performing loans via credit information tools.
CIBIL Link
News & Events
IBA concern over home loan frauds
The Indian Banks Association has undertaken a survey of
member banks to collect data on housing loan frauds and
evolve a concrete action plan to tackle the problem.
IBA has asked member banks to provide information on
frauds they have encountered by fabrication of income
documents (such as IT return, salary slip etc), encashment of
loan cheques by third parties, frauds caused by forged title
documents (through use of colour photocopies and fake
stamp paper), overvaluation of property to secure higher loan
amounts and instances of multiple financing by different
agencies.
(Business Line, October 11, 2006)
CIBIL plans products to spot good customers
CIBIL is coming out with a couple of new products that will
enable banks to spot their good customers and reward them.
A portfolio review analysis product would be capable of
undertaking an overview of the risk profiles of its existing
customer accounts. A member-bank could undertake an
overview of the risk profiles of its existing customer accounts
comprehensively through this product. `Macro analysis of the
bureau data', sliced product-wise, geography-wise, is to be
launched in December. With this, banks can thus compare
their own profile vis-à-vis the industry profile as thrown up by
the bureau data and take suitable corrective measures to
shore up the risk profile of their books. CIBIL would also be
launching "Bureau Credit Scores" for individual borrowers by
February 2007. This is a product that is getting introduced in
India for the first time. Using this product a bank could take a
well-informed credit decision quickly.
(Business Line, October 12, 2006)
Indian SMEs expected to Double in size
A SMERA and Dun & Bradstreet study of auto component
SMEs attempts to put them on a global platform.
The $10 billion auto components industry will double in size
to become a $ 22billion industry by 2010, similarly, exports of
auto components will grow from $1.8 billion in 2005 to $4.5
billion by 2010, says a recent study by Dun & Bradstreet
(D&B) in association with the SME Rating Agency of India Ltd
(SMERA). There are multiple factors that are seeing the auto
component industry record such exponential growth. The
publication also studies the banking preferences of the SMEs
and notes that nearly 66% of the profiled companies
preferred banking with public sector banks, followed by
private banks and co operative banks.
(The Financial Express October 20, 2006)
Retail loans surpass overall credit growth
Retail loans have surged by 40.9 per cent in fiscal 2005-06,
which was higher than the overall credit growth of 31 per cent,
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Volume I, Issue X, Oct - Dec 2006, Mumbai
according to the RBI's report on Trend and Progress of
Banking in India.
As a percentage of gross advances, retail loans increased
from 22 per cent in March 2004 to 25.5 per cent in March
2006.
The total exposure of the scheduled commercial banks to
sensitive sectors constituted 18.9 per cent of aggregate bank
loans. Of this, 17.2 per cent was in real estate, 1.5 per cent in
capital market and 0.3 per cent in commodities. The RBI has,
however, expressed concern about the stagnation of bank
credit to the small and medium enterprises sector. "Bank
credit to the SME sector has tended to stagnate in the recent
years which is matter of concern," said the report.
Banks should innovate and look for modern delivery
mechanisms that economize on transaction costs.
"Innovative channels for credit delivery for serving new rural
credit needs, encompassing full supply chain financing,
covering storage, warehousing, processing and
transportation from farm to market will have to be found," it
said.
(Business Line November 15, 2006)
National Identity Card Project all set for Take off
The Ministry of Home Affairs (MHA) is finally set to test the
waters for multi-purpose national identity card (MNIC)
through a delayed pilot project.
The card would help the Big Brother keep a tab on
burgeoning 110-crore-plus Indians and illegal immigrants
and terrorists after national roll-out of MNIC project at an
estimated cost of Rs 10,000 crore over four years.
The chip-based MNIC could prove handy for tax
administrations in catching tax avoiders and evaders.
The card could also be used by citizens for as tool for
personal services as such as E-banking.
The MNICs are expected to be ready in April 2007 for
delivery.
The local administrations have already collected, compiled
and verified citizens data in project locations. The data
included photograph, signature and finger print biometrics
data for each citizen would be stored in personalized smart
card. Each citizen would thus have unique, lifelong national
identity number (NIN). The bilingual card would have fixed
information such as NIN, name, sex and date of birth. It would
have dynamic information to incorporate changes in
residential address, marital status, etc.
The card would have memory slots where additional
information about the card holder would be organized and
stored.
(TIOL News Service, Dec 03, 2006)
CIBIL Link Volume I, Issue X, Oct - Dec 2006, Mumbai

Interview Section
Mr. M B N Rao
Chairman & Managing Director
Canara Bank
How do you assess the prevailing environment in the
Indian banking industry? What are the changes you
anticipate in the banking sector?
Present banking environment features several positives,
thanks to the path breaking and market led policy
initiatives and more importantly, the proactive role played
by the banking players. Receptivity to change has made
our banking system resilient to shocks and adopt best
practices under a host of global benchmarks.
Notwithstanding continued slackness in treasury, Indian
banks have reinvented their core competence and are
doing exceedingly well under core business as well as
earnings. Banks have played an important role in the
macroeconomic buoyancy, financing close to half of the
country's GDP. The other major feature relates to
increasing IT application in banks. This will immensely
help in streamlining the payment and settlement system.
All in all, Indian banking system has perfectly settled down
to the features and veracity of the competitive
environment.
While the future initiatives are expected to ensure greater
strength and stability in the system, a major part of such
initiatives will be with an eye on progressive globalization
of the economy. Post-2009 scenario will be a major basis
for further liberalization of banking operation with greater
supervisory safeguards. Basel II will be a major area to
watch out. Besides, consolidation moves are also
expected to pick up further and we could see major
initiatives in this regard in the medium term.
What have been the key growth drivers for the Bank?
Basically being a retail bank, our topline growth owes
quite a lot to the retail pockets. While deposits have grown
quarters, our advances on an average of 20% during the
last three have clocked 30% growth on an average. Most
of the growth in our advances have emanated in the retail,
agriculture and SME segments, with persistent rise in the
Bank's exposure to corporate and infrastructure
segments Under profitability, the growth drivers have
basically emanated from our core income streams, a
robust pool of non-interest income and contained costs.
The enhanced growth dimensions also owe a lot, among
others, to a revamp of organization structure,
empowerment of field functionaries, a series of HR
initiatives and above all, an effective planning and review
mechanism.
What improvements have you seen in the SME sector
and what more needs to be done? Is NPA's a worrying
factor in SME Lending?
SMEs are probably one of the most potent avenues that
banks will be capitalizing in the future. We have been
clocking a more than 20% growth in our SME exposure
over the last few years. We have plans to reinvigorate our
SME exposure further. The policy environment has also
been quite conducive with a series of initiatives
envisaged, to make SMEs a thrust area in terms of its
exports and employment potential. As for the asset
quality, assets financed under SMEs generally don't pose
any concern on the quality front. Moreover, our systems
and procedures are quite comprehensive in safeguarding
the quality of our SME portfolio.
What do you envisage as CIBIL's role in the Indian
financial sector?
CIBIL's role in the financial sector is quite crucial and
decisive. Asymmetry in credit information has all along
been a weak link in credit decisions and I'm sure,
comprehensive information available in one pool will do a
world of good to the credit assessment capabilities of
banks.
Do you see your bank benefiting from the existence of
CIBIL and sharing of Credit Information?
With continuing credit buoyancy, CIBIL will offer a lot of
benefits in our lending decisions. Weeding out
undesirable borrowers will strengthen credit management
functions and thus, volume growth will not cause concern
on the quality front. Such MIS will also lend a good hand to
our planning and research functions.

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