CIBIL

INTRODUCTION
 CIBIL is India's first credit information bureau and is a repository of factual information on the credit history and repayment records of commercial and consumer borrowers. CIBIL provides specific information to its Members in the form of Credit Information Reports (CIR). It caters to both commercial and consumer segments. The Consumer Credit Bureau covers credit taken by individuals while the Commercial Credit Bureau will cover credit taken by non-individuals like partnership firms, proprietary concerns, private and public limited companies, etc. Credit Information Bureau (India) Limited (CIBIL) was incorporated in 2000. The Consumer Bureau was launched on April 5, 2004. At present CIBIL is maintaining the database of Suit-Filed accounts of Rs.1 Crore and above and Suit-Filed accounts (willful defaulters) of Rs. 25 Lacs and above.  CIBIL - India's first credit information bureau- is a repository of information, which contains the credit history of commercial and consumer borrowers. CIBIL provides this information to its Members in the form of credit information reports.  CIBLI acts as weeding mechanism, that helps identify poor repayment track records. It helps protect lenders from giving credit to people and establishments who are unlikely to repay what is lent. Even if credit is provided, it is done so at a very high rate of interest, thereby ensuring that the bank is able to recover a considerable sum of money even if a def ault happens some time into the loan tener  The truth is today people spend more than our grandparents or parents ever did. Increasing incomes, desire to own a house in ones early twenties, availability of variety in lifestyle and brand choices, a booming economy growing number of enterpreneurs, new business establishments etc., are leading to a tremendous amount of money outflow. Money rotation is a key factor in a progressive economy and this means there is a lot of lending. How does one keep a tab on all the credit lent and how does one identify defaulters and refrain from lending to them again and again?  The government of India and RBI got together to bring CIBIL into existence. Currently Banks, Financial Institutions, State Financial Corporations, Non-Banking Financial Companies, Housing Finance Companies and Credit Card Companies are Members of CIBIL.  The idea behind setting up CIBIL is to gather all exisiting consumer and commercial credit information and pool it in a one point source for reference. As in an individual or commercial establishment could have accounts in several banks and credit from different lending institutions. All such data can be pulled out for a quick reference check on the individual or commercial establishment, seeking loans, to be aware of the repayment track record of the loan seeker and quickly decide on loan eligibility.

 CIBIL acts as weeding mechanism, that helps identify poor repayment track records. It helps protect lenders from giving credit to people and establishments who are unlikely to repay what is lent. Even if credit is provided, it is done so at a very high rate of interest, thereby ensuring that
MALANI KISHOR SANGAVI COLLAGE Page 1

CIBIL
the bank is able to recover a considerable sum of money even if a default happens some time into the loan tenure.

CURRENT SHAREHOLDING
 The shareholding pattern has now been diversified to include the following entities representing varied categories of credit grantors : -

 State Bank of India (SBI), Housing Development Finance Corporation Limited (HDFC), Dun & Bradstreet Information Services India Private Limited (D&B) and TransUnion International Inc. (TransUnion) signed Shareholders Agreement on January 30, 2001, with a view to establish the Credit Information Bureau (India) Limited (CIBIL). D&B and TransUnion, are also the technology partners and are well-known in the credit information businesses worldwide.  The establishment of CIBIL is a major initiative taken by the Government of India and the Reserve Bank of India in their drive to improve the working of the financial system, specifically to contain future NPAs. Reserve Bank of India had issued instructions on data submission to all credit grantors advising them on the type and periodicity of data to be submitted to CIBIL and has also instructed them, that as a prudential requirement, they must immediately incorporate a 'Consent Clause' in all the loan documents (after October 1, 2002), thus enabling them to share this data with CIBIL. . The relationship between CIBIL and its Members is one of close interdependence.

MALANI KISHOR SANGAVI COLLAGE Page 2

CIBIL
 The major objectives for establishing CIBIL includes (a) the need for comprehensive credit information by gathering credit related information regarding commercial and consumer borrowers, (b) maintaining a database of this information and selling the information in the form of credit reports to a closed user group of Members  154 credit grantors have accepted membership to CIBIL. These include 79 banks accounting for over 90% of the total credit outstanding amongst the commercial banks, 16 HFCs accounting for over 70% of the total credit outstanding amongst the HFCs, 11 FIs accounting for over 90% of the total credit outstanding amongst the FIs, 2 Credit Card Companies accounting for over 90% of the total credit outstanding amongst the CCCs, 7 State Financial Corporations and 41 major NBFCs representing a substantial portion of the credit outstanding of that sector. At present, CIBIL collects and updates the information about the borrowers from its Members (who are actually credit grantors) only. (However, later on it is likely that this information will be supplement by CIBIL with public domain information so as to create a truly comprehensive snapshot of an entitys financial track record)..  Then CIBIL allows the credit grantors to have access to its database to search and gain a complete picture of the payment history of a credit applicant.  Thus, we can say that CIBIL collects commercial and consumer credit-related data and collates such data to create and distribute credit reports to Members. (A Credit Information Report (CIR) is a factual record of a borrower's credit payment history compiled from information received from different credit genrator. Its purpose is to help credit grantors make informed lending decisions - quickly and early.

MALANI KISHOR SANGAVI COLLAGE Page 3

CIBIL

Benefits of a Credit Bureau

Credit penetration is higher in countries with credit bureaus

Increased

Credit

Volumes

Credit Bureaus facilitate increased lending opportunities for credit grantors while allowing easier access to credit for borrowers. The existence of credit bureaus in developed countries has facilitated increased market penetration of credit (to more than 66% as a percentage of GDP as compared to 3% for India) while keeping non-performing loans in check (approximately 1% of outstanding credit). Operating Efficiencies  Credit Portfolio Quality The use of CIRs accessed from a credit bureau will enable credit grantors loan officers to accurately evaluate borrower risk by making comprehensive credit histories available to decision makers. The CIRs will facilitate an objective and transparent assessment of credit applications. Concurrent borrowers and serial defaulters will be identified and minimized early in the approval process - consequently reducing associated recovery and write-off costs.
MALANI KISHOR SANGAVI COLLAGE Page 4

CIBIL
Similarly, premium borrowers will be identified and serviced faster. Ultimately, CIRs will enable Members to judiciously mix relationship-based lending and information-based lending. CIRs will serve as the first level of due diligence in the appraisal of a credit application.

Speed and Cost The use of CIRs will make processing loan applications easier, faster and cheaper by sometimes eliminating the need to additionally research and verify borrower details. The average loan in India is sanctioned in 2-3 days. A credit grantor using CIRs will be able to significantly reduce this turn round time and thus have a competitive edge in the marketplace

Differential Pricing
Owing to the lack of comprehensive credit information, all borrowers are charged an interest rate with an assumed level of default risk. This means that all borrowers are charged identical risk premiums regardless of their payment history and thus pay a premium that in developed countries is only applied to previously defaulting borrowers. As credit grantors begin to use comprehensive credit information they will be able to differentiate between good borrowers and defaulters. In an increasingly commoditized credit market, credit grantors will be able to use price in order to differentiate their loan products. In addition, borrowers who have diligently serviced their loans in the past will be able to demand cheaper loans in the future. Past defaulters will also have an opportunity to improve their credit histories by servicing their debt obligations in a timely fashion and thus earn access to lower interest rates. The Indian credit industry has only recently begun to offer differential pricing to their customers. As the credit environment becomes increasingly competitive, CIRs will play a pivotal role in the speed and confidence with which credit grantors will be able to increase their business volume. Hence, the use of CIRs will prove beneficial to both credit grantors and borrowers.

Credit Grantors
The use of CIRs will enable loan officers to make objective and informed credit decisions quickly, competitively and cost-effectively. The use of CIRs will enable them to increase their lending volumes and improve the quality of their credit portfolios while reducing their delinquencies and loan processing costs. This will translate into improved profit margins.

Borrowers
MALANI KISHOR SANGAVI COLLAGE Page 5

CIBIL
The widespread use of credit data will provide consumers with fast and easy access to the lending resources they need while reducing operating and risk costs for credit grantors. These reduce costs will be passed on to an extent to consumers with demonstrated credit performance in the form of lower interest rates. This easy availability of reasonably price credit will provide borrowers with the means to a higher standard of living.

 Smooth credit flow is the bloodline of an economy. Equitable and affordable credit opportunities provide the essential capital needed to allow entrepreneurship to flourish, lifestyles to improve and opportunities to expand.

 While availability of affordable credit is essential for the economic development of a nation and its people, managing this credit prudently is even more crucial in order to maintain sustainable growth and development.  When you approach a credit grantor for credit, your application will be evaluated on the basis of your past payment history, existing credit lines and other factors such as income and security. A good past payment history may lead to credit being granted faster and on better terms.  On the other hand, a poor past payment record could indicate past delinquency and lead to denial of credit or extremely expensive credit.  Therefore prudent credit management and financial discipline is a must to ensure a good credit history for enabling you smooth and faster access to affordable credit in the future.

Ways to improve your credit record:

 In order to ensure a good credit history, it is important to re-pay your loans on time. Financial discipline coupled with prudent credit management and a good payment history will ensure that you enjoy all the benefits associated with having a good credit record Making your payments on time will have the most significant impact on your credit record. It is

important for you to maintain appropriate, reasonable and affordable levels of credit and ensure regular and timely re-payment of loans.  Keep your total debt under control. If your total borrowings are significantly high, use some of your savings to repay some of your debt.  Investigate your options in order to reduce your interest and other credit related costs, e.g., refinance an outstanding loan at fixed interest rates if there is a significant drop in interest rates or you discover a significantly cheaper option, etc. This will make your debt burden easier to manage.  When you are seeking for a new loan or credit card, do it in a relatively short amount of time. You dont want to have your report show that you are constantly looking for credit!

MALANI KISHOR SANGAVI COLLAGE Page 6

CIBIL

CIBIL TransUnion Score The CIBIL TransUnion Score is a 3 digit numeric summary of your credit history. The Score is derived by using the details found in the "Accounts" and "Enquiries" sections on your Credit Information Report (CIR) and ranges from 300 to 900 points. The closer your Score is to 900, the more favourably your loan application will be viewed by a Credit Institution. The Score plays a critical role in the loan approval process Q.2 What does my Score mean? An individual's Credit Score provides a Credit Institution with an indication of the "probability of default" of the individual based on their credit history. What this means in simple English is that the Score tells a Credit Institution how likely you are to pay back a loan (should the Credit Institution choose to sanction your loan) based on your past pattern of credit usage and loan repayment behaviour. The closer you are to 900, the more confidence the Credit Institution will have in your ability to repay the loan and hence, the better the chances of your application getting approved. Q.3 What are the major factors that affect my Score? There are 4 major factors that affect your Score. These are described below:  Late payments or defaults in the recent past: Your payment history has a significant impact on your Score. Hence, if you have missed payments on any of your existing loans, over the last couple of years, your Score is likely to be negatively affected because it indicates that you are having trouble servicing your existing obligations.

 High Utilization of Credit Limits: While the balances on your loans will only reduce over time as payments are made, you must be diligent about making timely payments on your credit cards. While increased spending on your credit cards may not necessarily negatively affect your Score, an increase in the current balance on the card over time is an indication of an increased repayment burden and may negatively impact your Score. It's always prudent to not use too much credit.

MALANI KISHOR SANGAVI COLLAGE Page 7

CIBIL
 Higher percentage of Credit Cards or Personal Loans (commonly known as Unsecured Loans) on your CIR: A higher concentration of home loans or auto loans (commonly known as Secured Loans) is likely to be more favourable for your Score than a large number of unsecured loans. Although unsecured loans offer easy access to finance, it's also by far the most expensive forms of credit. More the number of unsecured loans with high utilization, larger are the payments resulting from its high rate of interest.

 Behaving "Credit Hungry": If you have made many applications for loans, or have recently been sanctioned new credit facilities, a Credit Institution is likely to view your application with caution. This "Credit Hungry" behaviour indicates your debt burden is likely to, or has increased and you are less capable of honouring any additional debt and is likely to negatively impact your Score.

 What does a "0" Score mean? The Score will be "0" in the following scenarios :  Credit history is less than 6 months  Date Opened of account/s is less than 6 months from the current date

 What does a "-1" Score mean The Score will be "-1" in the following scenarios :     Account information not available CIR has only enquiries and account information not available The last date reported or date closed is older than 24 months for all accounts Consumer is an 'Authorized' user for all the accounts in the report

It is important to note that while these scores are not viewed negatively by Credit Institution/s, some Credit Institution/s credit policy prevents them from providing loans to an applicant with scores of "0" or "-1"(Applicants with no credit track record) Hence, you may have better chances applying for a loan elsewhere.

MALANI KISHOR SANGAVI COLLAGE Page 8

CIBIL
CIBIL Commercial Credit Information Report (CCIR)
  CIBIL Commercial Credit Report is a factual record of your business entitys credit payment history compiled from information received from credit grantors. The purpose is to help credit grantors make informed lending decisions - quickly and objectively. All leading banks and financial institutions are members of CIBIL. CIBIL collects information from these Members, collates and disseminates it in order to create a truly comprehensive snapshot of a company's credit profile.

Information on a borrower is available in the CCIR

The CIBIL Credit Report includes the following information: Basic borrower information like: Company Name & Short Name Company Address Identification numbers PAN Telephone numbers  Records of all the credit facilities availed by the company  Amount overdue  Number of inquiries made on that company, by different Members CIBIL Members, which include leading Credit Institutions, can access information from CIBIL on the principle of reciprocity i.e. only those Members who have provided their data to CIBIL are permitted to access CIBIL Commercial Credit Information Reports (CCIR). Members can do so only to take valid credit decisions. Disclosure to any other person or entity is prohibited.    

An OvervieW
CIBIL - India's first credit information bureau - has been established to cater to the credit information requirement of the financial sector and serves as an effective mechanism for curbing the growth of NonPerforming Assets (NPAs). The Reserve Bank of India (RBI) constituted a Working Group in December 2001 to examine the possibility of CIBIL performing the role of collecting and disseminating information on suit-filed accounts and list of defaulters, being reported to RBI by banks and notified Financial Institutions (FIs). RBI then decided to implement some of the recommendations of the Working Group, which satisfied the existing legal framework of the time. In their letter no: DL.BC.111/20.16.001/2001-02 dated June 4, 2002; RBI apprised banks, FIs and state financial corporations of the formation of CIBIL and directed them to send, to CIBIL as well as to RBI, data on:

MALANI KISHOR SANGAVI COLLAGE Page 9

CIBIL
 Suit-filed accounts of Rs. 1 Crore and above, and  Suit-filed accounts (wilful defaulters) of Rs. 25 Lacs and above Consequently, banks and FIs submitted the list of suit-filed accounts of Rs. 1 Crore and above, as on March 31, 2002 and quarterly updates thereof till December 2002, to CIBIL as well as RBI. They also submitted the list of suit-filed accounts (wilful defaulters) of Rs. 25 Lacs and above as at the end of March, June, September and December 2002. Thereafter, from March 31, 2003 onwards, this data is being submitted to CIBIL alone. At present, CIBIL is maintaining a database on suit-filed accounts of Rs. 1 Crore and above and suitfiled accounts (wilful defaulters) of Rs. 25 Lacs and above. This information is based on an application developed to enable the users to access data through a parameterised search process across banks and companies at various geographical locations. Suit-filed accounts of lower value are being covered in a phased manner.

MALANI KISHOR SANGAVI COLLAGE Page 10