India has four credit bureaus, namely TransUnion CIBIL, Equifax, Experian, and CRIF Highmark.
Recently, the RBI announced an important change in the Credit Bureau data updates, mandating that from January 1, 2025, lenders must report data on a fortnightly basis, and submission by lenders should take place within seven days of that fortnight. At present, data updates take place in the first week of every month; the updated data is usually available to the users by the tenth or eleventh of the month. This creates a delay in informing the lender about any recent loans or defaults and the resultant score updates.
With RBI mandating fortnightly updates of lending data, recent defaults and new loans will be updated in the system quickly. The credit bureaus might have to optimize their data hardware to accept data more frequently. Many MFIs, even now, do a weekly update, and hence, the bureaus’ systems should be capable of handling this. However, from a borrower’s point of view, any good or bad credit behavior would be immediately reflected in the credit bureau.
From a lender’s point of view, frequent data updates help them to assess creditworthiness more objectively thereby reducing the risk of loans going bad. The good borrowers who are repaying regularly or actively improving their credit behavior will see their scores improve faster rather than waiting for 40 days as of now. Any early closure of loans gets reflected quicker and the scores get updated immediately rather than waiting for the monthly update and score revision after that. Early warning matrices can be made more robust with the frequent updating of data and more importantly, an immediate update of any customer default. Frequent updates will also enhance customer awareness, enabling them to be more disciplined in their repayment. With the advent of digital and quick loans, the Bureau’s data must be updated more frequently.
This frequent submission of data might pose an operational challenge to the smaller lending institutions as they need to upgrade and optimize their internal systems to do a higher frequency of reporting. Moreover, the reporting must be error-free as any errors would affect the customer’s credit rating and scores. The small ticket loans and loans to marginalized sections of society, many of whom do not have a regular income, will be affected more as the time available to regularize a default is much less.
Impact on Customer Complaints and Disputes
As of today, for a customer to redress any dispute it takes nearly two months, as they must first raise the dispute with the bureau, which has to then write to the concerned institution, following which the institution may revert in the next 30 days. Meanwhile, the customer is left with a bad credit score and the only thing he can do is to request the bureau to mark the default as a dispute. Thankfully, RBI has now mandated a ₹100 compensation to the customer for every day in case of delays beyond 30 days from the date of lodging the complaint.
Going forward, with the revised update protocols, the RBI should mandate a joint responsibility of the Bureau and the Bank to arrive at a resolution within 2 weeks. An ideal solution is for the RBI to create a common redressal app where customers can lodge complaints, and the relevant bureau and banks can pick them up immediately for quick resolutions — à la the Government of India’s CPGRAMS.
At a rough estimate, credit bureaus on average have about 3 billion tradelines and about 600 million unique customers. Many MFIS upload data weekly, so they are quite used and equipped to update every fortnight. An industry spokesperson said, “We are working with the industry to see how the data needs to be reported on a fortnightly basis and plan to replicate what we do in MFI data.” One solution that is being considered is to update only changes on a fortnightly basis and do a full update every month.
Future Outlook
With the advancements in technology, the RBI should consider automating the weekly upload of data to the bureaus. Also, to ensure that minor delays do not affect the credit scores of the customer, every customer should be given a grace period of 5 days from the due date before uploading their data, especially regarding delays in repayment.
The RBI’s move to require more frequent data uploads to credit bureaus is certainly a positive step toward improving credit information quality and financial stability. However, it also brings challenges that banks must proactively address to ensure that the benefits outweigh the drawbacks. Operational readiness, data accuracy, and robust security measures will be critical in making this transition smooth and effective.
Embracing Strategic Risk as a CFO in 2024