Thursday, February 19, 2015

Credit Information Bureau - CIBIL

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Lending is a risky process for a bank, due to risk of default. Therefore, before offering loans or advances to customers, banks need to evaluate the credit worthiness of its customers. But an individual can be customer of several banks, and may have taken loans from several of them at several time. It is difficult to maintain credit information of each individual in an isolate manner.

Therefore, it will be very much useful, if the credit history of the borrowers is maintained in a common repository, and then the information is shared among the lenders (e.g., banks). 

Credit Information Company (CIC)
CIC performs the role of that common repository. Banks and other Credit institutions provide the records of their customers' (borrowers) payments related to loans and credit cards, to the CIC on a monthly-basis. CIC collects and maintains those records and prepares Credit Information Reports (or, Credit Report). 

CIC then provides these Credit Reports to the lenders (banks or credit institutions), which are then evaluated by the lenders and used for approving loan applications or any other credit applications.


Credit Information Bureau of India Ltd. (CIBIL)
CIBIL is India's first Credit Information Company (CIC) founded in 2000, headquartered in Mumbai
Managing Director - Mr. Arun Thukral
Chairman - Mr. Mavila Vishwanathan Nair

CIBIL provides - Credit Information Reports (CIR) and Credit Scores to - 
  • Member institutions when evaluating loan applications
  • Individuals to review their credit history

Credit Score
If required by the loan provider (e.g., banks), CICs will provide a Credit Score. It is a 3-digit numeric summary of credit report of borrower
e.g., The CIBIL TransUnion Score (ranges from 300 to 900) is used by many lenders during the loan application process. In India, a number more than 750 out of 900 is considered a good score.

Example
Suppose, person X  has a home loan with Bank A and a credit card with Bank B. Both banks A and B will submit X's personal information and payment details to the CIC on a monthly-basis. Now, suppose X applied for a car loan in bank C. 

After receiving the car loan application, bank C will request CIC for the credit report of that person X. Bank C will then assess X's credit history, that how X has been paying his current dues and whether he will be able to manage the additional burden of another loan. If satisfied, then Bank C will offer a car loan to X, otherwise will reject the loan application.

CIBIL vs. CRISIL
Note that CIBIL is a Credit Information Company or repository of credit information, which is provided by member banks or other credit institutions. CIBIL prepares CIR and credit scores on individuals depending on their credit history.
CRISIL is a rating agency, which rates business houses or governments.(For more information on CRISIL, or credit rating agencies, follow the link - http://bankoncepts.blogspot.in/2015/02/credit-rating-agencies.html)


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