RBI’s New Credit Reporting Rule To Benefit Borrowers Who Make Timely Payments

The Reserve Bank of India (RBI) has implemented a new rule requiring lenders to update credit bureau records every 15 days instead of the current month-long cycle.

The new reporting rules on loan facilities by lenders will have a far-reaching impact on the dispensation and availability of credit facilities by potential borrowers.

“With the reporting period of the status of outstanding loans reduced to 15 days instead of the earlier one-month cycle, a more accurate and up-to-date position will now be available with the credit bureaus for sharing with the lenders as well as borrowers,” says Jyoti Prakash Gadia, managing director, Resurgent India, an investment bank.

The records of defaults (if any) and regular payments will now be updated at 15-day intervals, which benefits both the lenders and the regular-paying borrowers.

“The earlier stipulation of a month-long cycle sometimes delayed the information of defaults by as much as 40 days, and the latest position of payments (if any) was not revealed to the lenders. This resulted in incorrect information impacting the judicious decision-making by lenders about new loans to be granted,” says Gadia.

Similarly, for a borrower who had repaid the overdue, a higher time interval was taken into account before the regularisation was recorded. This unduly delayed requests for fresh credit by the borrower.

The records of defaults (if any) and regular payments will now be updated at 15-day intervals, which benefits both the lenders and the regular-paying borrowers.

“The earlier stipulation of a month-long cycle sometimes delayed the information of defaults by as much as 40 days, and the latest position of payments (if any) was not revealed to the lenders. This resulted in incorrect information impacting the judicious decision-making by lenders about new loans to be granted,” says Gadia.

Similarly, for a borrower who had repaid the overdue, a higher time interval was taken into account before the regularisation was recorded. This unduly delayed requests for fresh credit by the borrower.

How Will It Benefit Borrowers

There are positives for the lenders and borrowers who pay regularly in comparison to a borrower who habitually delays payments.

The new regulations will also reduce the instances of the tendency of some borrowers to borrow new loans to pay overdue on previous loans.

The credit score of a borrower is directly related to the past records of timely payments and defaults. With more frequent recording and updation of this information with the credit bureau, the credit scoring will be more accurate and precise based on updated material information.

“The credit score of those borrowers who pay regularly and timely will get improvement and those who delay payment even for a period of 15 days will get an adverse scoring. However, at the same time, regularising your past overdue will get reflected faster for improving your score again faster,” says Gadia.

The credit score is not a stationary number that is computed at regular intervals, say every month. It gets computed dynamically each time the request is made based on the data available at that point in time.

More frequent reports to the CIC means there’s faster updation of information, which is good for both, the consumer, as well as the lender.

“As a borrower, you will get to see the change in the status of your loans much sooner, which is very important when you make a prepayment or close your loan. Lenders will also be able to make better risk assessments of borrowers and reduce the risk of over-leveraging by borrowers,” says Adhil Shetty, CEO, BankBazaar.com.