THE CREDIT INFORMATION

COMPANIES (REGULATION)

ACT,2005

HISTORY In 1962, Credit Information Division was established in

Reserve Bank of India. The Reserve Bank of India Act,1934 was amended in

the year 1962 incorporating amendments to the effect that RBI was given powers to collect information.

The Banking Commission (1972) under the Chairmanship of Shri R.G.Saraiya, recommended setting up of a Credit Intelligence Bureau as a statutory body which would furnish adequate and reliable credit information to banks and other financial institutions.

Shri R.G.Saraiya

HISTORY (CON) Credit Information Scheme thus evolved by the RBI in

1962 was discontinued in 1995. Later as a result of the economic reforms, number of

banks increased rapidly. In this context Credit Information Bureau (India) Ltd., (CIBIL) was set up in January 2000.

Recognizing the need for putting in place an institutional mechanism Credit information company bill was introduced in the parliament in 2004.

In 2005 Credit information Company Bill was passed. The CIC Act came into force in 2006.

The Reserve Bank of India and the Government of India have enacted the Credit Information Companies Regulations, 2006 ("Regulations") and the Credit Information Companies Rules, 2006 ("Rules") issued under the Act.

IMPORTANCE OF CREDIT INFORMATION COMPANY

The lender before extending the loan checks the information of the borrower in the form of the credit information report to find out the credit worthiness of the borrower.

On the basis of the individual credit information report of each borrower, a score is given to the borrower which indicates his/her reputation in the credit market.

Credit information company is evolving a credit-rating model that will reward borrowers with a good credit history and penalise those with a poor record.

USES OF THE CREDIT INFORMATION: To make effective credit decisions To deter concurrent borrowers and serial defaulters. To keep adverse selection of customers to the

minimum. To review and evaluate risk of its customers. To effectively discharge their statutory and

regulatory functions. To effectively discharge the functions as a credit

rating agency. Generally in relation to and for purposes of taking

credit decisions, or for judging credit worthiness of a borrower in a client, as the case may be.

CONT.

To take a credit decision on a person who accepts liability for payment on a bill of exchange, drawn by another person.

To take credit decision in relation to a person who draws a promissory note in favour of another person.

To take credit decision in relation to a person who proposes to act as a guarantor for another person.

To enable a person to know his own credit information.

OBJECTIVES OF THIS ACT

To regulate credit information companies.

To facilitate efficient distribution of credit and for matters connected therewith or incidental thereto.

REGISTRATION OF CREDIT INFORMATION COMPANIES

Application for Registration must be presented to RBI (Sec 4).

The Reserve Bank after being satisfied, grant a certificate of registration to the applicant company (Sec 5,6,7).

Minimum capital—The authorised capital of every credit information company shall be a minimum of thirty crores (Sec 8).

MANAGEMENT OF A CREDIT INFORMATION COMPANY RBI has the powers to determine the policy of the

credit information companies with regard to their functioning.

RBI shall give directions to the credit information companies, wherever it thinks it is in public interest, or in the interest of credit institutions, specified users, banking policy and proper management.

The management of a credit information company has been entrusted to a whole time chairperson and a part-time chairperson who can be of a non-executive nature.

COLLECTION AND FURNISHING OF CREDIT INFORMATION A CIC or any person so authorised, may by a notice,

requisition credit information from its members being Credit Institutions and other CICs.

The member of Credit Institutions and CICs must furnish the requisitioned information within the time specified in the notice.

FUNCTION OF CIC 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.

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.

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.

To undertake research project. 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.

DISPUTE SETTLEMENT As far as dispute settlement, when there is no

remedy available under the Act, the matter shall be resolved by using the Arbitration and Conciliation Act, 1996.

The arbitrator should be appointed by RBI and the matter has to be resolved by the arbitrator within three months.

PRIVACY UNDER CIC The privacy of the borrower has been taken care by

providing the availability of a credit information report by the borrower on payment of the requisite charges.

The borrower himself can approach the relevant authority for the purposes of correction in the report.

The Act give powers to RBI for determining the fees for providing information to the relevant persons authorised under the Act.

SECURITY

The employees and other officers of the credit information company would be required to maintain fidelity and secrecy with respect to the information in their hands and for this, reliance has been placed in the Act upon the practices and usages as shall be prevalent amongst the credit information companies.

For violation of the privacy of the consumer or the borrower with regard to the credit information heavy penalty of Rs 1 crore may be imposed on the credit information company, credit institution or any specified user (Sec 23(2)).

SUGGESTION FOR EFFECTIVE IMPLEMENTATION Who ever moving to the bank/financial institution

must know that credit information Companies are carefully watching us.

Therefore ‘Awareness’ about this law is must for all.

Remember CIC when you are moving to bank