While fintech companies and legacy banks both are quick to give loans, the information that goes into a borrower's or consumer's credit bureau score is often 30 days or even older. It's a typical example of how financial infrastructure is falling behind the current rate of lending or innovation. A financial system with this kind of mismatch would be fragile because every default in a specific loan segment would have a domino effect.
In contrast to what they already do, the Reserve Bank of India (RBI) wants banks and other financial institutions to send data to credit bureaus more frequently. Data submission used to occur every 30, 60, and more than 90 days. While there has been progress in the past, there remains a gap that exposes the institutions to danger.
"I can only ingest as fast as I receive the data," stated Manish Jain, Country Managing Director of Experian India, during a Digital Lenders Association of India (DLAC) Conclave in Mumbai. I am aware that every seven days, the fintech sector submits reports to credit bureaus. "Therefore, your expectation is to absorb information more quickly," replied Jain from Experian India, emphasizing that bank data has a minimum 30-day latency.
All banks and non-banking financial companies (NBFCs) were instructed by the RBI almost ten years ago to join credit information companies (CICs) or the credit bureaus, TransUnion CIBIL, Experian, Equifax, and CRIF High Mark, and to disclose all existing credit data, including any defaults.
Every month, the credit bureaus keep track of information on loans and payment histories. They obtain credit ratings for banks, individuals, and any other organization that requests them by gathering data from banks and financial organizations. This facilitates banks' comprehension of a borrower's obligations prior to authorizing a new loan.
Additionally, the RBI requests that banks update credit data either monthly or less often. As a result, for retail lending to thrive, credit bureaus have been crucial in shaping individual credit behavior.
"We all make decisions in a matter of minutes or seconds. The data that we receive or rely on from the bureaus is at least 30 days old, 60 days old, or 90 days old. So, while we think we are fast, let's say, in the month of February, we are actually underwriting based on the Bureau's data, which may be from September, August, or December. September is a real problem," said Gaurav Hinduja, Co-founder, and Managing Director at Axio, who also moderated the session.
But the fintech sector is similarly tiny, with data submissions occurring within a week. They don't have any legacy problems either. Currently, the fintech sector accounts for a mere 2% of the nation's total loan value. This implies that in order to have an impact, larger institutions must participate.
The credit bureaus have been bringing up the issue with the government on behalf of their industry. A technical working group is present. Each of the four participating credit bureaus interacts with the ministry, particularly the Department of Financial Services, in addition to the regulator.
"If a bank says I don't have infrastructure to provide you with data more frequently than 30 days or 90 days, how can you measure me on the speed of freshness? You cannot," says Jain who was asked about the need for faster speed of credit bureaus to collect, process, and generate reports for the industry.
"Two large banks have moved to daily submission," adds Jain.
Clearly, there is a long way to go for the banks and institutions to submit daily data and also for the credit bureaus to publish daily scoring of borrowers.
