By Ashu Suyash
The Public Credit Registry (PCR), a body proposed by a high-level task force set up by the Reserve Bank of India (RBI), promises to be a game changing move for the handling of credit data in India. Once established as envisioned, it will provide consistent and reliable data on each borrower’s aggregate debt exposures, and real-time information on defaults, across the financial sector. Lenders will benefit from availability of comprehensive credit-related data and simplification in reporting. PCR will enhance credit discipline in the banking system, and accelerate development of data-driven analytic tools. At the level of the economy, the ability to track all borrowings in real time will enable the PCR to become a critical piece of financial market infrastructure, keeping aggregate risks visible and in check. From the viewpoint of a global analytics company such as Crisil, datasets of the envisioned quality will help deliver much sharper and faster insights to the market to aid decision making with regard to credit and risk.
Some novel features stand out in the task force’s recommendations. To begin with, banks and NBFCs will no longer need to report each credit exposure to different systems in different formats. Instead, the PCR will function as a single-point data repository, and different players in the financial system (banks, NBFCs, credit bureaus, regulators, etc.) will draw data from it adhering to strictly-defined access rules. Secondly, the report proposes an enabling legal framework, which will regulate the collection and sharing of this data. Thirdly, information on each default will be shared on a realtime basis, alerting lenders and triggering corrective actions. Also, the recommendations envision building a link between the PCR database and related data (such as financial reports for corporate entities, tax information, legal proceedings, etc.) over a period of time. This can transform the ability of the financial system to rely on “alternate data” to take credit decisions.
The task force has been careful to distinguish between the roles of the PCR and the credit bureaus, while acknowledging their coexistence in the financial system: the PCR’s role will be limited to collecting, storing and disseminating data, and it will not provide analytic products or services, which are the domain of credit bureaus. Nevertheless, there are bound to be some overlaps between the PCR and the credit bureaus, and the latter will therefore need to reorient their business models.
We see this move accelerating two trends that are already apparent in the financial sector. Firstly, it will further enhance accountability for lenders, by making available comprehensive debt servicing data. Coupled with stricter asset recognition norms, we see this limiting the rise of NPAs in future. Secondly, it will lead to a significant growth in digital lending as innovative lenders that are already using technology for lending decisions will benefit from the additional data, as will other players in the ecosystem that provide supply chain risk solutions. Access to the PCR will enable credit rating agencies (CRAs) to enhance the value they provide within the risk management ecosystem. The real-time availability of default data will allow CRAs to alert the market in a more timely manner on defaults by rated entities, creating credit discipline. In addition, the availability of complete and authentic data will help the better-equipped CRAs to differentiate credit quality more sharply. CRAs can also develop analytic products to help corporates and SMEs to manage counterparty exposures, thereby extending the benefits beyond the financial sector.
However, for these benefits to be realised, it is necessary to provide CRAs access to PCR. Given that the data is sensitive, its usage must be authorised carefully; the strong regulatory framework governing the CRAs makes them natural allies to PCR.
Although the report recognises the need for CRA access, it has not defined such access; greater clarity on this aspect is essential.
It is important to highlight a few other areas where the fine print of execution can come into play. To begin with, the initiative will need to be backed by elaborate and strong legislation, and will require concerted action by several agencies, for the proposed two-year timeframe for full operations to be met. Secondly, for the PCR to fulfil its purpose, it will be necessary to capture several classes of corporate debt that traditionally do not fall within lenders’ purview, for instance, external commercial borrowings and privately-placed debentures. While the report recognises the need to capture these, a robust mechanism is needed for the same. Finally, areas around privacy and data security need to be in consonance with the data protection framework for India, and – to the extent that borrowers have a global presence, or global affiliations – also with various international laws and requirements.