Credit firms not required to obtain users' consent to maintain credit scores: RBI to Supreme Court

New Delhi: The Reserve Bank of India told the Supreme Court that credit rating companies were not required to obtain a consent from borrowers and customers to collect their credit information as the 2005 law empowered them to collect, store and maintain as well as process the data.

In an affidavit, the banking regulator opposed a plea raising right to privacy of the citizens in online financial transactions to seek action for contravention of the provisions of Credit Information Companies (Regulation) Act, 2005 in sharing of data of individual customers.

The RBI also said the credit information companies as well as the specified users are prohibited to disclose the credit information received under the CICR Act to any other person for any other purpose than as permitted under the law.

It pointed out under the provisions of Section 17(3) of the CICR Act, the credit information companies are entitled to provide the credit information to specified user for such purpose, as may be specified by regulations. "The specified users are prohibited under Section 17 (4) (b) of the CICR Act to disclose the credit information to any other person," it said.

Responding to an allegation by petitioner Surya Prakash that the credit data is being sold by the credit information companies which are charging hefty amounts to provide credit information reports, the RBI said, the allegations are unsubstantiated and are an outcome of ignorance, misconception and misconstruction of the statute and the mandate of the law of the land.

The RBI also said during the course of inspection of credit information companies under Section 12 of the CICR Act, various orders have been passed imposing monetary penalties for their various contravention and non-compliance with certain provisions of the CICR Act.

"One of the purposes to provide credit information as per the mandate of the law is to make effective credit decisions and to evaluate the risk of customers. Therefore, the allegation of the petitioner that the same leads to financial discrimination is an averment in ignorance with the object, purpose and intent of the Act," it said.

The RBI submitted, it is mandatory for banks and financial institutions to form an informed opinion on the basis of the credit information provided by the credit information companies before sanctioning and granting credit facilities to any borrowers.

However, no minimum "credit score" for sanctioning the loans has been specified. The information contained in the credit information reports is one of the factors, amongst various other factors, that the credit institutions or lenders consider before granting any type of credit facility to a prospective borrower, it said.

The RBI further asserted the provisions of the CICR Act in terms of Section 14 authorised the credit information companies to collect, process and collate the information on trade, credit and financial standing of the borrowers, to provide credit information, credit score to its specified users and to undertake research project.

"Thus, the allegations of the petitioner that the credit information companies are snooping, spying and accessing the financial data and giving credit scores to the borrowers thereby making an environment to financially discriminate amongst them, is in contradiction and incongruous as well as inconsistent with the purpose, intent and spirit of the provisions of CICR Act," it said.

With an intention to arrest accretion of fresh NPAs in the banking sector, a need was felt to set up an efficient system of credit information on borrowers as a first step in credit risk management, the RBI said.

It maintained to curb the alarming rise in the NPAs in banks and credit institutions, the credit information system plays a vital role whereby before granting any credit facility, the credit institutions make an appropriate assessment about the creditworthiness of the individuals or customers or borrowers.

A bench of Justices Surya Prakash and N Kotiswar Singh is scheduled to consider the matter on Monday. The apex court has issued notice in the plea in May, 2024.