On 8th August 2024, the Reserve Bank of India (RBI) made an important announcement about the frequency of credit information reporting by banks/NBFCs to credit information companies (CICs) like CIBIL and others. What is this announcement, from when is it applicable, and how will it help banks/NBFCs and borrowers? Let us understand.
Earlier, banks and NBFCs used to report credit information to the credit bureaus monthly. On 8th August 2024, RBI released a notification mentioning the frequency of credit information reporting will change from monthly to fortnightly. The new credit information reporting directions will be effective from 1st January 2025.
However, the RBI has encouraged the credit institutions and CICs to give effect to implementing directions as expeditiously as possible but not later than 1st January 2025. The credit information companies and credit institutions (CIs) that don’t adhere to the RBI directions will be liable for RBI penal actions.
The credit institutions and credit information companies will have to keep the customer credit information collected/maintained by them updated regularly on a fortnightly basis. The data will be updated on the 15th and last day of the month or at such shorter intervals as mutually agreed upon between the CI and CIC. The CI will have to submit the fortnightly credit information to the CIC within seven working days of the relevant reporting fortnight.
The CICs will have to ingest the credit information data received from the CIs within five calendar days (earlier seven calendar days) of its receipt. The CIC will have to report any CI not adhering to the fortnightly data submission timelines to the RBI at half-yearly intervals for information and monitoring purposes. The CICs will have to do the half-yearly reporting of CIs not adhering on 31st March and 30th September each year.
The credit score is a three-digit number that reflects a borrower’s creditworthiness. For example, if you want to apply for a credit card with a bank, apart from other factors, they will look at your credit score. A CIBIL score of 750 and above is considered a good score to approve the credit card. The higher the credit score, the better.
With the RBI’s latest directions, the credit score will be updated fortnightly instead of the current monthly frequency. If a borrower has made a loan repayment or credit card bill payment, it will reflect sooner in their credit history and help improve their credit score. A better credit score will boost the borrower’s ability to get additional credit.
Similarly, if a borrower has delayed or defaulted on a loan EMI or credit card bill, the information will reflect in the borrower’s credit history sooner and impact their credit score adversely. Thus, the lender will be able to underwrite better, assess the borrower’s creditworthiness and make a lending decision.
In the last few years, several banks and NBFCs have digitised the end-to-end process for the application of credit products like loans and credit cards. The digital processes have led to faster turnaround time in credit underwriting. The RBI felt it was imperative that the Credit Information Reports (CIRs) provided by CICs to bank/NBFC customers reflect more current information.
Earlier, during the monthly data update cycle, when a customer paid their loan EMI(s) or credit card outstanding, they had to wait longer for the repayment information to reflect in their credit report. Now, with a fortnightly data updation cycle, the repayment information will reflect faster in the credit report. As the data is updated more frequently, the credit score will reflect the changes faster than earlier. It will help customers improve their credit score faster.
With the latest updated credit score, the probability of a credit card or loan application getting approved will increase. Also, a higher credit score can help the customer get a loan at a lower interest rate and better terms.
The latest updated customer credit information available more frequently, fortnightly instead of monthly, will enable credit institutions to make informed credit decisions. With the latest credit information, they will be able to decide whether the loan or credit card application can be approved, and on what terms.
It will help banks and NBFCs to do better risk assessment of borrowers. With the latest availability of information, banks and NBFCs will be able to avoid over-leveraging of borrowers. They will also be able to identify borrowers who have made multiple credit card and loan applications with multiple credit institutions.
The RBI directions for fortnightly updation of credit information will benefit both, credit institutions and customers. It will bring transparency and promote a healthy credit culture. It will also help in reducing lending to over-leveraged customers and reduce the probability of defaults.
A shift from monthly credit information updation to fortnightly opens up the future possibility of even more frequent updates. With CIs and CICs investing in technology and infrastructure, in future, it may be possible to move to weekly, daily updates and eventually instant real-time updates.
Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.
