Overview of CIBIL:
-
India is a developing nation. Everybody wants
to do something big in his or her life. To do something big in his life money
is highly essential. Those people often take loan from both Banking Financial
Institutions and Nonbanking Financial Institutions. They take loans like
Education Loan, Agricultural Loan, Home Loan, Gold Loan, Commercial Vehicle
Loan, Business Development Loan, Inventory Funding Loan, Loan against Property,
etc. Quite often both Banking and Nonbanking Financial Institutions face huge
burden of Non-Performing Assets (NPA) & bad-debt. A single person gets
funded by multitude of financial institutions and a ripple effect would be
hazardous to the economy.
Example:
-
Suppose Mr Santosh has taken loan from the
State Bank of India of about Rs.10,00,000. Let’s say he is very bad customer.
His payment track was very bad in SBI loan. After 1 year he applies for another
loan in Indian Overseas Bank and the IOB lends him Rs.13,00,000. Suppose again
he unable to pay the EMI periodically. So, here is a person who has been funded
by many financial institutions. NPAs of the banks have been growing rapidly and
in some time these NPAs get converted to Bad debts. Such bad debts amount to
losses for the Financial Institutions.
To eradicate such type of losses, Government
has formed an Organisation called Credit Information Bureau of India Limited
(CIBIL). It keeps all loan payment track records of each & every individual
who may have taken any loan in his or her life. CIBIL was formed in August
2000. It primarily collects and maintains records of
individuals’ payments pertaining to loans and other credits. Both Banking Financial
Institutions and Nonbanking Financial Institutions provide all the payment
track, information of all loans by each individual included in their respective
KYC (know your customer) details to CIBIL. Financial Institutions can track the
Credit Information Report (CIR) of an individual & find out if he/she has
been paying EMI regularly or not, and then arrive at a decision to disburse the
loan amount or not based on the candidate’s CIBIL score.
Scores Analysis: -
- 1 score: implies that the borrower has no previous history of
borrowings with any bank or lending institution.
- 300-600 score: is considered to be credit risk by bank & other
financial institutions. Credit Cards & loans will not be provided to
people under this score.
- 601-750 score: is considered intermediate range of scores, and allow
an individual to borrow from various lenders.
- 750 score and above is considered to be good score, and the
candidate is considered to be credit worthy.
How a Person can
get affected?
As an
Applicant: -
The person who is taking the loan is called
an applicant. When the applicant is not repaying his EMI, Financial
Institutions provide their loan track report to the CIBIL office and the CIBIL.
In this report the number of days defaulted is also mentioned, along with the
CIBIL score & thereafter the applicant becomes poor credit candidate.
As a
Co-applicant: -
Some financial institutions add co-applicants
for various loans. The assurance of payment of the EMI thus becomes higher.
Both applicant and the co-applicant are liable to close the loan and the EMI.
The same issues as above apply here as well and the track record gets noted in
CIBIL for both applicant & co-applicant.
As a
Guarantor: -
Many a time if an applicant’s CIBIL track
record is poor the Financial Institution gives loan only when there is a local
guarantor. The person who gives the guarantee to pay off the loan is called
Guarantor. Suppose the applicant and co-applicant are unable to pay the EMI,
the Guarantor is responsible and liable to do so, as well as to close the loan.
If guarantor is unable to make payment, his/her track record too gets adversely
affected in CIBIL. In CIBIL report the payment track will show as a Guarantor.
Recommendations: -
·
Avoid late payments.
·
Collect the no objection certificate (NOC)
from the financial institutions after closing any loan.
·
Do a fixed deposit and then take a
Credit Card against that.
·
Be the guarantor only for those whom
you have faith.
Debashish Dash
Student, INLEAD
INBM, October 2015 Batch
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