Rectify credit giving system of banks

In order to improve national economy and carry out new schemes for the poor and neglected sections of society, various schemes are being introduced. Nationalised and private banks and financial institutions are expected to carry out most of the schemes.

But these constituents are bound by certain rules and unless they are properly guided and given free hand to achieve success in such schemes, practical problems like credit improvement and creating favourable atmosphere in interests of both the bankers and consumers need corrective solutions on priority basis.

Banks and financial institutions are expected to encourage those small constituents who have no credit background but may fair well if they are encouraged by providing due credit for their activities.

This is more so because latest survey has pointed out that inequality in our country is growing as those having clout with power or lobbying for bargaining can get the required facilities while others without such means of negotiation are left un-served. Their credit should either be presumed or condoned at the initial stages.

Credit and credibility are two different concepts. Credit is considered more on the basis of monetary strength while credibility is rather a moral consideration than only monetary one. Banks and financial institutions are considering creditworthiness of an individual or an institution while considering loan proposals.

Those who have no bank account have no credit in banks. Jan Dhan is a special scheme for them and initial credit is offered to them for their very entry in to the banking mainstream. But those individuals, firms or companies who have bank accounts and have taken loans from banks are susceptible to scrutiny for their credit score. The credit score is considered when they approach banks for new proposals or various other projects for which they are in need of loans. 

While banks have no mechanism to verify the credit score of customers who approach them for loans, the CIBIL (Credit information bureau) has entered in the realm to keep record to credit scores of all bank customers, individuals or institutions, so that banks in need of credit score of those who want loans are informed about it by the CIBIL.

But whether the CIBIL’s reports are foolproof is not yet publicly questioned and according to experience of a few customers, the reports are either inadequate or inaccurate thereby indicating that the CIBIL needs review of its operations and inadequacies.

In this context, whether it is mandatory for banks to rely fully on the CIBIL’s credit score or not needs clarification. What exactly is the RBI’s view in the matter also needs clear clarification.

Most of the nationalised and even co-operative banks are referring to the CIBIL before finalising loan proposals. But the CIBIL seems to be linked with one ‘Credit Sudhar’ firm which rectifies the bad credit and turns it into a good one for the relevant report to the CIBIL and thereby to the concerned banks.

As this is done with fees ranging to Rs.Ten to Sixteen thousands it is a matter of curiosity as to how the first report is turned in to a positive one. The way it is thus transformed needs scrutiny.

Credit Sudhar

According to a financial news portal moneylife.com, the CIBIL is associated with ‘Credit Sudhar’ a firm which provides consultation as to how the defective report pointed out by the CIBIL would be improved against the charges.

The RBI should verify as to how the CIBIL is linked with the ‘Credit Sudhar’ which charges for its credit sudhar technique and how credit can be improved without paying the dues to banks for which no consultation is required.

In view of the current crisis in the banking sector due to considerable number of willful defaulters and rising NPAs the RBI as regulator should come forward with its clarification and necessary action.

This is more so because small borrowers or educated unemployed though recommended by the district industries centre are not easily responded to by banks whose officials ask for deposits or guarantors and even though some guarantors are ready they are barred if any lacuna is found in their the CIBIL report.

In cases of education loans even though no guarantor is required for amount less than Rs 4 lakhs, according to the RBI circular, all banks including co-operatives have made their own rules and demand guarantors as co-borrowers whose CIBIL report is verified and loan is denied if some lacuna is found in the report. This is obviously gross rejection of the RBI’s policy.

Under this situation, if banks are relying on the CIBIL reports and denying credit facilities to the needy common consumers, the very aim of nationalisation of banks is frustrated.

While persons and institutions that are already getting credit facilities seem to be provided further and more facilities while other needy persons seem to be neglected. They need encouragement for their gaining opportunity to improve their quality of life.