The Indian Lending Ecosystem has evolved over a period into a multi-layered system consisting of players like Fintech Start-ups, Data Providers, and also Credit Bureaus. But a large population of the country including SMEs and MSMEs are still deprived of Formal credit. We believe that Public Credit Registry is a big step in the right direction to solve this problem of lending and encourage financial inclusion in the country by making aggregated data available in one place with the necessary secondary information base.
PCR or the Public Credit Registry is a form of data aggregation platform, conceptualized a couple of years ago by the RBI. It is a framework that is present globally and is also a critical component in deciding a country’s position in the World Bank’s Ease of Doing Business Rankings.
But how is PCR different from the credit bureaus already present in our country?
Looking at the data aggregation in India from a lending perspective, there are several players currently present in the market.
- Credit bureaus: That aggregate lender data according to RBI regulations and assign a credit score to the borrower that reflects his creditworthiness. There are 4 credit bureaus currently operating in India- CIBIL, Equifax, Experian, and CRIF
- Central Repository of Information on Large Credits (CRILC): Provides information on the credit exposures of borrowers
- Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI): Provides information on securitized assets for loan purposes and helps identify fraudulent activities in lending transactions and prevent borrowers from taking multiple loans using the same asset as security.
But India requires a uniform data source from a lending and borrowing perspective in order to solve the information asymmetry in terms of the parameters taken into consideration. the date of reference and the credibility of data available.
PCR provides a centralized repository, available to all industry players, where information is pulled from sources like SEBI, GSTN, IBBI, Ministry of Corporate Affairs, etc which can provide us with a 360-degree view of the borrower.
Looking at the broad architecture, PCR consists of 2 major components
- Core Credit Information from the Banks, NBFCs, and regulated FIs like domestic borrowing, ECB, and all contingent liabilities.
- Secondary Information can add value while making decisions on the creditworthiness of a borrower like
- Ministry of Company Affairs Information: Company id, directors’ information, Financial details
- Fraud Database Information: Willful defaulters list, RBI Caution list, CFR, ECGC, etc
- SEBI Information: Promoter list, shareholding, Market borrowing, etc
- Legal Database Information: Like litigation against debtor /promoter
- Tax Information
- IBBI Listing status Information Regarding the insolvency and Bankruptcy
- GSTN information
- CERSAI Information
The various parties that access this information repository (on a consent basis) can include Borrowers, Creditors, RBI, Other regulators, CICs, Information Utilities, etc.
In several regions across the globe, Public credit registries have been coexisting with Credit bureaus. The major differences that are visible between the Public Credit Registry and Bureaus are:
- Ownership: The Public Credit Registry falls directly under the supervision of the Central bank. While the Bureaus are privately owned entities.
- Client Structure: The clients of bureaus will mostly consist of creditors and other services providers whereas PCR focuses on any Financial Entity that is authorized to Credit and government agencies like regulators.
- Scope of Work: The SOW of bureaus includes everything related to the credit assessment and monitoring while for PCR it includes Banking supervision, building statistics, financial stability studies; Monitoring and preventing over-indebtedness; Credit assessment; Fostering prudent management for credit institutions
- Creditors Participation: In India, it has been mandated by the regulators that companies have provided information to the bureaus while across the world it is generally voluntary. On the other hand, participation in PCR is mandated by law
- Services Provided: Unlike bureaus, PCR only acts as an information repository ad does not provide additional services like Credit Scoring and Portfolio Management
PCR can bring several advantages to the economy like improved visibility on the credit history that can help bring down the number of bad loans in the country and encourage the Fair pricing of loans by distinguishing ‘good’ and ‘bad’ borrowers. Better Financial inclusion through increased credit flow to the under-served sectors. The Ease of the penetration of credit to the MSME sector will improve as the digital registry will serve as a single point reference for all the credit transactions of enterprises. PCR is a big step in the direction to provide simplified, streamlined, and consolidated reporting with Better regulation to assess the banking sector.
Despite the advantages that Public Credit Registry can provide, it is not all going to be smooth sailing from here on. There are several challenges ahead that the PCR could face especially on the implementation level. These could include lack of API-Readiness in banks, multiple lending platforms used by Banks, NBFCs, Lending Fintechs and their compatibility with PCR, the difference in the information structure on different platforms, Managing and sorting the enormous amount of data generated covering all loans without any minimum thread, etc. Despite having consent-based architecture going to part of the Infrastructure, Privacy and confidentiality could still be a major challenge that PCR has to resolve.
To conclude, while PCR has several challenges lying ahead of it; It is a huge step in the right direction in terms of improving the data visibility and transparency of the lending process. And the evolution of PCR over the years will transform the entire lending ecosystem of the country. While the power lies in the implementation of this idea, it is safe to say that the next few years are going to be interesting and transformative to the economy.
In the webinar conducted by The Digital Fifth on the same topic, we had Industry experts join us in order to provide better clarity on the topic. The questions that were addressed in the session included the difference between PCR and PCB, How the lending ecosystem and the lending Process could evolve with the implementation of PCR, the potential of PCR to help the SME/MSME segment create a digital footprint that can help them get access to credit from traditional sources, etc.
Check our webinar on Data Empowerment and Protection Architecture and its implications on Financial Services: