Public Credit Registry of India

2019 ias preliminary exam test series

The Reserve Bank of India (RBI) is considering setting up a Public Credit Registry (PCR), which will be an extensive database of credit information for India that is accessible to all stakeholders.

If put in place will help in credit assessment and pricing by banks; risk-based, dynamic and countercyclical provisioning at banks; supervision and early intervention by regulators; understanding if transmission of monetary policy is working, and if not, where are the bottlenecks; and, how to restructure stressed bank credits effectively.

PCR is managed by a public authority like the RBI or the banking supervisor, and reporting of loan details to the PCR by lenders and/or borrowers is mandated by law.

The contractual terms and outcomes covered and the threshold above which the contracts are to be reported vary in different jurisdictions, but the idea is to capture all relevant information in one large database on the borrower, in particular, the borrower’s entire set of borrowing contracts and outcomes.

Central repository, which, for instance, captures and certifies the details of collaterals, can enable the writing of contracts that prevent over-pledging of collateral by a borrower.

In absence of the repository, the lender may not trust its first right on the collateral and either charge a high cost on the loan or ask for more collateral than necessary to prevent being diluted by other lenders. This leads to, what in economics, is termed as pecuniary externality – in this case, a spillover of one loan contract onto outcomes and terms of other loan contracts.

Furthermore, in the absence of a public credit registry, the ‘good’ borrowers are disadvantaged in not being able to distinguish themselves from the rest in opaque credit markets; they could potentially be subjected to a rent being extracted from their existing lenders who enjoy an information monopoly over them.

The lenders may also end up picking up fresh clients who have a history of delinquency that is unknown to all lenders and this way face greater overall credit risk.

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