In order to tackle the loan/credit availability issue of the MSMEs and startups, RBI has recently decided to establish a Public Credit Registry (PCR) that will facilitate access of financial institutions to the entire profile, including past loan details, and also regular income flows of borrowers. Enabling efficient credit risk assessment, such a registry can also offer attractive interest rates to good borrowers and higher interest rates to defaulters. The ultimate aim of this move is to foster transparency and promote financial inclusion for a sector that is widely acknowledged as the backbone of the Indian Economy.
The move is a departure from the existing mechanism where there are multiple credit information repositories with varied data objectives and coverage. The lack of credit information gap will be filled by the unified PCR. The data contained in the system will be made available to stakeholders on a need-to-know basis.
The idea behind creating the public registry is to collate the financial information of individual and corporate borrowers under one platform, inclusive of financial delinquencies, pending legal suits, and willful defaulters. The objective is to strengthen the credit culture of the Indian economy.
It is believed that unlike the credit information bureaus like CIBIL, PCR would not just house data from financial intermediaries like banks but it would also include data from utilities, other regulators and even from ministries.
Data on borrowings from banks, non-banking financial companies, corporate bonds or debentures from the market, external commercial borrowings (ECBs), foreign currency convertible bonds(FCCBs), masala bonds, and inter-corporate borrowings are not available in one data repository. PCR will help capture all relevant information about a borrower, across different borrowing products in one place.
The PCR would help the Financial Institutions such as fintech startups, P2P lending firms and other private financial institutions immensely in terms of identifying the good borrowers and monitor over borrowing and loan staking more effectively thus reducing credit risk and bringing down the credit cost and ultimately leading to lower cost for the borrower and higher credit growth.
It is suggested that the PCR will improve India’s ease of doing business parameters at the World Bank.
RBI is also setting up a regulatory sandbox for fintech companies, which will allow startup ventures to test out their product before releasing it to public usage. This will also involve bypassing RBI regulations, though for testing purpose only. The Sandbox involves temporary relaxations or adjustments of regulatory requirements to provide a “safe space” for startups or established firms to test new technology-based financial services in a live environment for a limited time, without having to undergo a full authorization and licensing process.