In the dispensation of retail loans, banks increasingly find their hands tied by the credit card history of applicants. The repayment history of all credit card holders is recorded by Credit Information Bureau (India) Ltd (Cibil) and disseminated among banks.
Both public and private banks told Financial Chronicle that taking decisions on retail loan applications was becoming problematic as credit card defaults had increased and loan applicants' record showed up on their computers. But the disputed accounts were not mentioned in the history.
Bankers said there had been many cases where the 'defaulters' might not have been at fault, as credit cards were thrust on them, and charges piled on them even while their cases were under dispute. Routinely dubbing them 'defaulters', card-issuing banks promptly sent adverse reports against them to Cibil.
Cibil, the credit information company formed in 2004, hosts the credit record of borrowers of virtually the entire lending spectrum of the country -- banks, non-banking financial companies (NBFCs) and financial institutions. The credit history of a loan applicant is made available to lenders to minimise fraud and check potential defaults.
Expressing concern at the trend, an official of the retail lending division of Punjab National Bank said loans were often refused, and applicants asked to sort out the matter with the card issuer or approach Cibil.
"We are witnessing a high incidence of adverse reports. It is an issue of concern for us and the industry in general," he said.
G S Rekhi, chief general manager of credit at Punjab and Sind Bank, has had a similar experience. "We are facing a serious problem due to instances of credit card defaults reported by Cibil. An increasing number of our loan requests are getting blocked due to the adverse credit card history of applicants," Rekhi said.
Arun Thukral, Cibil managing director, admitted most of the problems were on the credit card front. "We are working to improve the reporting system where disputed accounts will be brought to the notice of lenders," he said. Thukral did not want to put a number to the cases of what he called "credit card challenges".
Lending institutions said they did not keep a statistical record of loan denials. However, an extent of the malaise can be gauged from the report of the banking ombudsman, whose office deals with complaints of bank customers. The report for 2008-09, which was released by the Reserve Bank of India in February, points out that credit card-related complaints accounted for 26 per cent of all complaints which numbered 75,000 during the year.
The number of credit-card complaints itself increased by over 74 per cent during the year, showing an uptrend. "The types of complaints continue to be those related to issuance of unsolicited credit cards, unsolicited insurance policies, recovery of premium charges, charging of annual fee despite the cards being offered free, issuance of loans over the phone, disputes over wrong billing, settlement offers conveyed telephonically, non-settlement of insurance claims after the demise of the card holder, abusive calls and excessive charges," the report says.
The report may not give the full picture, as many customers do not approach the ombudsman, choosing instead to try and settle with their banks.
C S Jain, head of personal banking at IDBI Bank, said that often the problem was due to outdated records with Cibil. "The pace of updation of Cibil records appears slow. We have come across cases where the Cibil report points to a default but the individual concerned has a letter showing a settlement having been reached with his bank months earlier," Jain said.
Cibil's Thukral denied delays, saying his organisation constantly updated its database. "We have upgraded our system over a period of time. Today, it takes barely three or four days to upload data we receive. The data must be fresh and we have to depend on what lending institutions provide. Earlier, data were provided to us on a quarterly basis but now it is done every month. The task is enormous. We host borrower data from over 200 lending institutions," he said.
IDBI Bank's Jain said his bank had instructed its staff that adverse credit report showing defaults of up to Rs 5,000 should be ignored where prima facie it appeared that the borrower was not at fault. "If defaults are bigger, then we certainly take cognisance of the Cibil report. Wilful default is a clear indication of how a borrower will behave subsequently," he said.
The Punjab National Bank official spoke of instances when they ignored the Cibil report "if we feel that these are cases of forcibly sending cards and compounding of charges. Otherwise, we ask the borrower to approach Cibil with the facts and get the data rectified," the official said.
A State Bank of India official dealing with retail loans, however, said Cibil's report was useful to the system. "It is a question of being able to correctly interpret the report. Banks have to learn how to assess the payment ability and likelihood of default based on the report. The entire credit information system functions on the basis that it lets the rest of the system know about what's going on elsewhere. We are still in a nascent stage," he said.
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