Any individual or an Entrepreneur desiring to avail finance from any Bank or Financial Institution for purposes like Housing Loan or Business Loan, till now, was under the impression that the Banks/Financial Institution consider before entertaining the loan application the aspects as to whether the Applicant has the regular monthly income so that the repayment capacity is assured; or in case of business loan, the Income tax returns for previous 3 years besides the financial transaction statements issued by his present Bank/s which disclose various relevant information as regards outstanding loans, if any and its repayment and other details of bounced cheques, if any, regular credits of income, subsisting encumbrances, if any etc.
The criteria for sanction of loans either by Banks/Financial Institutions usually depend upon the Credit Rating, the Age Factor, the Age of the Property, the contribution by the borrower/margin money, and last but not the least the Negative list of the borrower.
However, in tune with the evolution of economy and taking into consideration the market needs, the Banks/Financial Institutions have felt the need for existence of a Central Repository for Credit Information of clientele, in India, which paved way for incorporation of Credit Information Bureau of India Limited aptly known as Cibil.The Cibil was established during early 2000 most by the efforts made by the Government of India and the Reserve Bank of India to address the functionality and stability of the Indian Financial system while curbing the NPA portfolio vis-à-vis gearing-up quality portfolio of the credit grantors.
The Role of CIBIL
The role of the CIBIL is to collect, collate and disseminate the information pertaining to both commercial and consumer borrowers to its members. The information so provided by the CIBIL enables the Banks/Financial Institutions to make informed, objective and faster credit decisions. The relationship between the CIBIL and its members will be that of close interdependence.
Further, the objective of Cibil is to minimize defaults and maximize credit penetration and quality portfolio by providing comprehensive credit information pertaining to individual borrowers; which is included in the loan appraisal process by Banks/Financial Institutions in the form of Consumer Credit Information Report.
Compilation of data by CIBIL
Cibil one among the 4 Credit Bureaus that have been licensed by the Reserve Bank of India under the Credit Information Companies Regulation Act, 2005 (CICRA). Almost all the major Banks/Financial Institutions/NBFCs and other lenders provide details of the credit facilities given by them to their customers as well as the amounts that have fallen due and the repayment made by the customers, on a periodical basis (monthly or quarterly). The CIBIL collates and aggregates this information, and up date the same from time to time, basing on the input provided by its members.
Consumer Credit Report
Recently, the Cibil announced that they have introduced a manual system to provide Consumers with their own Credit Report, on a test basis. In this Report, the CIBIL has started offering Consumer disclosures through an Interim solution and this is a testing phase the same would be operational in due course.
The CIBIL is also developing the infrastructure, systems and processes for an automated solution that would be needed to enable an individual direct access to their Credit Reports from CIBIL. The full-fledged Credit Report under Consumer Relations system shall have world-class features that will allow consumers to access their report on-line and in turn the Banks/Financial Institutions to respond to errors via an on-line maintenance tool.
CIBIL report is not only used to verify the Credit Profile of the client, it also ensures that the individual/borrower with good rating shall get better rate of interest, faster processing, first right to loan; while the other with bad rating or lesser grade shall get loan at higher rate of interest (because such borrower/individual is risky) and even the Banks/Financial Institutions can even deny entertaining sanction of loan at all.
Thus the CIBIL gives an individual/borrower the power to build his own Credit Report. If the borrower behaves with responsibility and uses his credit effectively with planning, he can build a good credit history with CIBIL, which will help him in long run.
Beware, availing too many loans without having the capacity to repay is not only a negative thing but also can affect your entire credibility /credit report. Notwithstanding these, the decision of the Banks/ Financial Institutions/NBFCs is final in case of recovery of outstanding dues and other claims. In such eventuality, the Consumer/individual/borrower should stand on their own strength with the support of sufficient documentary evidence including the acknowledgement obtained towards full and final settlement of their outstanding dues with the Banks/Financial Institutions.