The financial sector is becoming more complex and the burgeoning size of NPAs in the banking system is proving to be a major challenge. The introduction of financial sector reforms in 1993 brought to fore the extent of NPAs in a structured fashion and the stock of NPAs is being tackled through various measures. It also became imperative to arrest accretion of fresh NPAs in the banking sector through an efficient system of credit information on borrowers as a first step in credit risk management. In this context the requirement of an adequate, comprehensive and reliable information system on the borrowers through an efficient database system has been keenly felt by RBI/ Government as well as credit institutions. Recognising the need for an effective mechanism for exchange of information between banks and financial institutions, the Finance Minister in his Budget proposals of 2000-2001, indicated that the growth of fresh NPAs could be curbed through better institutional mechanism for sharing of credit information on borrowers and potential borrowers among banks and financial institutions. He, therefore, announced that a Credit Information Bureau (CIB) would soon be established on the recommendations of the Working Group constituted by the Reserve Bank of India to work out the modalities for setting up a Bureau.

The Working Group, constituted by the Reserve Bank of India under the chairmanship of Shri N.H. Siddiqui, CGM, DBOD, RBI, with representatives from select public sector banks, IDBI, ICICI, Indian Banks' Association and Reserve Bank of India, to explore the possibilities of setting up a Credit Information Bureau, submitted its Report in October 1999. It had recommended, inter alia, that (a) a CIB be set up under the Companies Act, 1956 with equity participation from commercial banks, FIs and NBFCs registered with Reserve Bank of India; (b) a foreign technology partner be included as a collaborator in setting up of a Bureau; (c) an appropriate legal framework be put in place to provide adequate protection to the Bureau as also the credit institutions sharing information with the Bureau; (d) pending enactment of a master legislation/legal amendments, a beginning could be made for setting up a Bureau which can operate initially by pooling information on suit-filed accounts as also transactions on which the borrower has given consent, for sharing amongst the user group.

The Group was also of the view that the master legislation would enable the Bureau to be a repository of both positive and negative information and that the Bureau should inherit the best international practices with regard to collection of information, processing of data and sharing of information.

In the Monetary and Credit Policy for the year 2000-2001, the Governor, Reserve Bank of India, announced the setting up of Credit Information Bureau in India, based on the Report of the Working Group to explore the possibilities of setting up a Credit Information Bureau, set up by RBI. He indicated therein that the State Bank of India had entered into a MOU with Housing Development Finance Corporation (HDFC) to set up a CIB and the modalities for setting up the Bureau in regard to ownership and equity participation, management structure, security standards, rights and liabilities of the Bureau, etc., were being worked out. As the Bureau is expected to expedite credit and investment decisions by banks and financial institutions, and curb the accretion of fresh NPAs, banks and financial institutions were advised to make necessary in-house arrangement for gathering and collection of such information in one place for transmitting it to the Bureau as and when it was established.

Credit Information Bureau (India) Ltd., (CIBIL) was set up by State Bank of India in association with HDFC in August 2000, with an authorised capital of Rs.50 crore and a paid up capital of Rs.25 crore, with equity participation of 40 per cent each and two foreign technology partners viz., M/s. Dun & Bradstreet Information Services (India) Pvt. Ltd., and Trans Union International Inc., U.S.A. sharing the remaining 20 per cent equity stake. The CIBIL was to be technology driven to ensure speedy processing, periodic updating and availability of error-free data at all times in the system. CIBIL's technical partners have commenced the preliminary work relating to customization of software on the basis of information furnished by some banks.

With a view to strengthening the legal mechanism and facilitating the Bureau to collect, process and share credit information on the borrowers of banks and financial institutions, a draft legislation covering, inter alia, responsibilities of the Bureau, rights and obligations of the member credit institutions and safeguarding privacy rights, was prepared by Reserve Bank of India and submitted for Government's approval in May 2001.

Pending enactment of the Credit Information Bureaus Regulation Bill, as a first step towards activating the Bureau, it was announced by the Governor, Reserve Bank of India, in the Mid-Term Review of Monetary and Credit Policy for the year 2001-2002 that action would be initiated within the existing legal framework. Accordingly and in order to operationalise the process of collection and dissemination of data on credit information by the CIB, a Working Group was constituted by the Reserve Bank of India to examine the possibility of the CIB performing the role of collecting and disseminating information on the suit-filed accounts and the list of defaulters, including the willful defaulters and to examine the other aspects of information collection and dissemination and feasibility of supplying such information on-line to members. The composition of the Working Group has been given in Annexure I. The terms of reference of the Working Group were as under:

• to examine the possibility of the Credit Information Bureau performing the role of collecting and disseminating information on the list of suit-filed accounts and the list of defaulters, including willful defaulters, which is presently handled by RBI;

• to examine the other aspects of information collection and dissemination, such as, the extent, periodicity and coverage including the feasibility of supplying such information on-line, to members in future;

• to examine whether, it should also be possible to work out in future a 'query mode' to provide any additional information needed and considered appropriate, on specific requests from members, including particulars relating to directors in the defaulting companies, as long as it is legally permissible;

• to look into the suggestion given by bankers that the information regarding the defaults of State Governments should be widely circulated and published; and

• any other matter relevant to the subject.

The Working Group was required to submit the report by 31st January 2002. The Group adhered to the time schedule and submitted its recommendations in January 2002. These are being pursued and looked into by RBI.

As per RBI Report of Banking for the year 2001-2002-"In order to strengthen the legal mechanism for making the functioning of CIBIL effective, a draft master legislation covering responsibilities of the Bureau, rights and obligations of the member credit institutions, safeguarding of the privacy rights, is under preparation by the Government."

Explaining the need for setting up CIBL and the its future prospects Mr. Satish Mehta, Managing Director of Credit Information Bureau (India) Ltd. (CIBIL), has stated as under-

"In recent years, India has emerged as an increasingly industrialised country with a fast growing economy. Liberalisation and modernisation of the economy have led to higher standards of education, increased incomes and purchasing power, aspirations for a better lifestyle, and expectations of higher quality products and services. Banking has also been transformed with private sector entry and the economy is now a lot more resilient and self-sufficient. All of this means organisations require quality information to make good lending decisions.

"There are approximately 101 banks, 22 non-banking finance companies and 30 housing finance companies in India, as well as a large number of co-operative banks and other regional credit grantors, all of whom are potential users in the long term. All sectors of the financial industry in India recognise the need for a credit bureau. This view is endorsed by the Government of India and our Reserve Bank.

"A system for unique identification and tracking of an individual, such as social security, or unique state identity cards, is not in place today. Thus, the search engine would need to be more robust to identify 'the borrower."

Giving out the facilities for successful functioning Mr.Mehta further explained that participation by an international credit information bureau in the domestic bureau - CIBIL would provide much needed technical expertise and skills not presently available in India. Best practices from other countries could be adapted to our market. In order to benefit from the international expertise available from the global credit information bureaux, it might be advantageous if foreign technology partners were included as technical and equity participants. Equity from the technology partners would ensure enhanced commitment, efficiency of operations and sophistication of technology.

In December 2001, RBI constituted two Working Groups: to examine the possibility of CIBIL taking over from RBI, the publication of

• the lists of suit-filed accounts and willful defaulters- RBI have already transferred this work to CIBIL)

• To evolve a framework for collecting and sharing information on Private Placements of Non-SLR Investments by corporates with Banks and FIs- (RBI expected to allot this work to CIBIL)

The Web-Site on Suit-Filed Accounts scheduled to be published by Sept, 2002.Web-Site on Private Placements - Subsequent to RBI allotting the work to CIBIL.

CIBL aims to launch its commercial operations in the first quarter of 2003. Summary Recommendations of the Working Group is given in the page titled Credit Information Bureau Ltd (CIBL) - Part: 3