“The introduction of public registries and private bureaus has been found to raise the ratio of private credit to GDP in many countries by 7 to 8 percentage points over a five-year horizon. Importantly, credit registries and bureaus do not just increase the amount of borrowing; they are also responsible for improving the quality of borrowing,” Acharya said.
In June RBI had announced the formation of a PCR that will collate information for both individual and corporate borrowers allowing banks to share data on stressed loans. The move followed a task force formed by the RBI last year under former Larsen & Toubro executive YM Deosthalee which submitted its report in April. Acharya himself had proposed a PCR in a speech last year.
Currently, corporate exposures of Rs 5 crore and above are shared with the central bank on the Central Repository of Information on Large Credits (CRILC) in India. There are also private credit bureaus (PCBs) like Cibil, Experian and Equifax which share mostly individual credit history with banks.
Acharya quoted the World Bank’s Doing Business 2018 report saying that 44 countries had both a PCR and PCBs while 52 counties had only a PCR.
“At a broad level, the PCR increases the efficiency of lending institutions by reducing information asymmetry using a PCR, the lender can get a 360 degree view of the borrower’s other outstanding credits and past performance, allowing better screening at time of credit origination and superior monitoring during the life of the credit. This is a well-studied phenomenon and has been recorded in many research studies,” Acharya said.
He pointed out that many loans in India are classified as NPAs in one bank’s books while the same loan may be classified as standard in the peer bank’s books because banks do not share data. This risk will be eliminated due to a PCR, he said.
A PCR linked to the GSTN network will also help banks to reach out to the informal part of the economy which is presently underbanked. “Estimates also suggest that the informal economy employs nearly 50 per cent of the workforce in India3. The earnings of some in the informal economy may be at par with their formal economy counterparts, but due to its informal nature, people and businesses in this part of the economy are rendered ‘invisible’ to the formal banking system. This ‘invisibility’ adversely affects their ability to grow current income level because of lack of access to formal credit,” Acharya said pointing out that India’s credit-to-GDP ratio stands at a modest 55.7 per cent, compared to China’s 208.7 per cent, United Kingdom’s 170.5 per cent and United States’ 152.2 per cent.
“PCR can aggregate the information of a borrower using the core credit information repository and information lying in a set of sub-systems spread across multiple agencies (MCA, GSTN etc) to aggregate information of a borrower….With this infrastructure in place, we expect the costs for on-boarding those users who are currently excluded by formal credit to nosedive. It will become feasible to serve a large number of customers, operating at a much lower average transaction size. Just like in the Fast-moving Consumer Goods (FMCG) sector, banking and access to credit too will be ‘sachetized’ to make it more accessible and affordable for the masses. We want that even a small tea shop vendor should be able to take a 500 rupee loan at fair rates, say, for only a week, based on such data,” Acharya said.
The credit database so created will also provide better tools to regulators and researchers to monitor the health of, and provide stability to, the national financial system.
“I am excited for what we can achieve when our small entrepreneurs are not capital-constrained, or when health shocks do not send families to usurious loans, and back into poverty. The PCR and the GSTN are two giant strides that utilize modern technological advances for improving information access and quality. Together, they hold the rich promise of enabling us to democratise and formalise credit in India,” Acharya said.