Mudra Compass

Most of people around us know credit bureaus but do you all know how credit bureau came in picture. What made Indian Government to bring Credit Information Companies (Regulation) Act, 2005 and credit bureau in our financial life?

Let’s see How The Credit Information Companies (Regulation) Act, 2005 was formed?

To reform NPA under Credit Risk Management in banking sector, it is essential to collect Credit Information of borrowers and for that there is a need of efficient system which will manage data, collection and store in proper manner which felt by Reserve Bank of India, the Central Government, Credit Institutions and other players in baking and financial sector. Thus the Reserve Bank of India has constituted a Working Group to explore the possibility of setting up a Credit Information Bureau. The Working Group submitted its report in October, 1999 and recommended amongst other things

The Working Group observed that it would not be possible to set up a world class credit information company within the existing legal framework.

• Enactment of legislation for facilitating collection ad sharing of information by the proposed bureau.
• To amend certain Acts relating to banking to permit sharing of information with the said bureau.

Thus, A Credit Information Bureau (India) Ltd being a company formed and registered the Companies Act, 1956 has already been set up in January, 2001. With a view to provide necessary legislative support to the business of credit information, it is proposed to enact legislation, namely, the Credit Information Companies (Regulations) Bill, 2004 for regulation of Credit Information Companies and to facilitate efficient distribution of credit. The Bill, contains provisions for –

• Prohibition to commence or carry on business of credit information without obtaining a certificate of registration from the Reserve Bank of India;
• Procedure for making application for grant of certificate of registration, grant f certificate of registration, cancellation of certificate of registration and appeal against order of rejection of an application for grant f certificate of registration and cancellation of certificate of registration;
• Requirement of minimum capital;
• Management of credit information companies;
• Conferring power upon the Reserve Bank of India to determine policy in relation to functioning of credit information companies and also giving directions to credit information companies and other players in the business of credit information;
• Functions of credit information by credit information companies;
• Collection and furnishing of credit information companies;
• Powers and duties of auditors;
• Obtaining of membership by credit institutions of credit information companies;
• Information privacy principles;
• Alterations of credit information files and credit reports;
• Regulation of unauthorized access to credit information;
• Offences and penalties;
• Obligations as to fidelity and secrecy;
• Resolution of disputes between credit institutions and credit information companies or between credit institutions and their borrowers;
• Exemption from any or all the provisions of the proposed legislation to any credit information company or credit institutions;
• Amending certain enactments specified in the Schedule to the Bill so as to permit disclosure of credit information under the proposed legislation.

At last, The Credit Information Companies (Regulation) Bill having been passed by both the Houses of Parliament on 23^rd June, 2005.

In 2011 the act was amended and launched again as a CIC Act 2011.

Definitions involved in CIC Act

(a) “board” means the Board of directors of a credit information company;

(b) “borrower” means any person who has been granted loan or any other credit facility by a credit institution and includes a client of a credit institution;

(c) “client” includes—

        (i) a guarantor or a person who proposes to give guarantee or security for a borrower of a credit institution; or

        (ii) a person—

              (A) who has obtained or seeks to obtain financial assistance from a credit institution, by way of loans, advances, hire purchase, leasing facility, letter of credit, guarantee facility, venture capital assistance or by way of credit cards or in any other form or manner;

              (B) who has raised or seeks to raise money by issue of security as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), or by issue of commercial paper, depository receipt or any other instrument;

             (C) whose financial standing has been assessed or is proposed to be assessed by a credit institution or any other person or institution as may, by notification, be directed by the Reserve Bank;

(d) “credit information” means any information relating to—

            (i) the amounts and the nature of loans or advances, amounts outstanding under credit cards and other credit facilities granted or to be granted, by a credit institution to any borrower;

           (ii) the nature of security taken or proposed to be taken by a credit institution from any borrower for credit facilities granted or proposed to be granted to him;

         (iii) the guarantee furnished or any other non-fund based facility granted or proposed to be granted by a credit institution for any of its borrowers;

         (iv) the credit worthiness of any borrower of a credit institution;

         (v) any other matter which the Reserve Bank may, consider necessary for inclusion in the credit information to be collected and maintained by credit information companies, and, specify, by notification, in this behalf;

(e) “credit information company” means a company formed and registered under the Companies Act, 1956 (1 of 1956) and which has been granted a certificate of registration under sub-section (2) of section 5;

(f) “credit institution” means a banking company and includes—

           (i) a corresponding new bank, the State Bank of India, a subsidiary bank, a co-operative bank, the National Bank and regional rural bank;

          (ii) a non-banking financial company as defined under clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934);

         (iii) a public financial institution referred to in section 4A of the Companies Act, 1956 (1 of 1956);

         (iv) the financial corporation established by a State under section 3 of the State Financial Corporation Act, 1951 (63 of 1951);

         (v) the housing finance institution referred to in clause (d) of section 2 of the National Housing Bank Act, 1987 (53 of 1987);

        (vi) the companies engaged in the business of credit cards and other similar cards and companies dealing with distribution of credit in any other manner;

        (vii) any other institution which the Reserve Bank may specify, from time to time, for the purposes of this clause;

(g) “credit scoring” means a system which enables a credit institution to assess the credit worthiness and capacity of a borrower to repay his loan and advances and discharge his other obligations in respect of credit facility availed or to be availed by him;

(h) “notification” means a notification published in the Official Gazette of India;

(i) “prescribed” means prescribed by rules made under this Act;

(j) “regulations” means regulations made by the Reserve Bank under this Act;

(k) “reserve bank” means the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934);

(l) “specified user” means any credit institution, credit information company being a member under sub-section (3) of section 15, and includes such other person or institution as may be specified by regulations made, from time to time, by the Reserve Bank for the purpose of obtaining credit information from a credit information company;

words and expressions used herein and not defined in this Act but defined in the Reserve Bank of India Act, 1934 (2 of 1934) or the Banking Regulation Act, 1949 (10 of 1949) or the Companies Act, 1956 (1 of 1956) shall have the meanings respectively assigned to them in those Acts

Functions of Credit Information Companies

(1) A credit information company may engage in any one or more of the following forms of business, namely:—

(a) To collect, process and collate information on trade, credit and financial standing of the borrowers of the credit institution which is a member of the credit information company;

    (b) To provide credit information to its specified users or to the specified users of any other credit information company or to any other credit information company being its member;

    (c) To provide credit scoring to its specified users or specified users of any other credit information company or to other credit information companies being its members;

    (d) To undertake research project;

    (e) To undertake any other form of business which the Reserve Bank may, specify by regulations as a form of business in which it is lawful for a credit information company to engage.

(2) No credit information company shall engage in any form of business other than those referred to in sub-section (1)

(3) Any credit information company for the purposes of carrying on the business of credit information may—

   (a) Register credit institutions and other credit information companies, at their option as its member, subject to such terms and conditions as may be pre-determined and disclosed by such credit information company;

   (b) Charge such reasonable amount of fees, as it may deem appropriate not exceeding the maximum fee, as may be specified under section 27, for furnishing credit information to a specified user;

   (c) Generally to do all such other acts and perform such other functions as are necessary to facilitate proper conduct of its affairs, business and functions in accordance with the provisions of this Act.

Privacy Principles

Every credit information company, credit institution and specified user, shall adopt the following privacy principles in relation to collection, processing, collating, recording, preservation, secrecy, sharing and usage of credit information, namely:—

(a) The principles—

(i) Which may be followed by every credit institution for collection of information from its borrowers and clients and by every credit information company, for collection of information from its member credit institutions or credit information companies, for processing, recording, protecting the data relating to credit information furnished by, or obtained from, their member credit institutions or credit information companies, as the case may be, and sharing of such data with specified users;

(ii) Which may be adopted by every specified user for processing, recording, preserving and protecting the data relating to credit information furnished, or received, as the case may be, by it;

(iii) Which may be adopted by every credit information company for allowing access to records containing credit information of borrowers and clients and alteration of such records in case of need to do so;

(b) The purpose for which the credit information may be used, restriction on such use and disclosure thereof;

(c) The extent of obligation to check accuracy of credit information before furnishing of such information to credit information companies or credit institutions or specified users, as the case may be;

(d) Preservation of credit information maintained by every credit information company, credit institution, and specified user as the case may be (including the period for which such information may be maintained, manner of deletion of such information and maintenance of records of credit information);

(e) Networking of credit information companies, credit institutions and specified users through electronic mode;

(f) Any other principles and procedures relating to credit information which the Reserve Bank may consider necessary and appropriate and may be specified by regulations.

Disclosure of Disputed data by a Credit Institution

If, in the opinion of a credit institution, correction of any inaccuracy, error or discrepancy as referred to in rule 20, is likely to take further time on account of any dispute raised by a borrower in respect thereof, with the credit institution or before a Court of law, or any forum, or tribunal or any other authority, in such cases the credit institution shall adopt the following course of action, namely:-

(a) If the disputed data has not been furnished, in such event while furnishing such data to a credit information company or making disclosure thereof to anyone else, in accordance with the Act, the credit institution shall include an appropriate remark to reflect the nature of the inaccuracy, error or discrepancy found therein and the pendency of the dispute in respect thereof and in any subsequent disclosure of such disputed data the credit institution shall also disclose such remark;

(b) In case such credit information has already been furnished to a credit information company or disclosed to anyone else, the credit institution shall inform the credit information company or the individual, as the case may be, to include the remark about such inaccuracy, error or discrepancy and the pending dispute in respect thereof, against such data, information or credit information received by them from the credit institution; and

(c) The entries in books of the concerned credit institution shall be taken into account for the purposes of credit information relating to such borrower as provided under the provisions of second proviso to sub-section (3) of section 21 of the Act.