The Reserve Bank of India is considering allowing asset reconstruction companies (ARCs) to take membership of credit information companies (CICs). This is to ensure that the ‘defaulter' status of a borrower continues to be reflected in the records of CICs even after the sale of non-performing loans by banks to ARCs.
If ARCs are allowed to become members of CICs, then it will become well-nigh impossible for defaulters to obtain loans from lenders. The reason: with NPLs getting transferred to their books by virtue of acquisition from banks, the ARCs will take up the responsibility of updating the credit information pertaining to defaulting borrowers.
Continuity in credit information pertaining to defaulting borrowers, whose loans have been sold by banks to ARCs, will ensure that they will not get loans from other lenders – banks, non-banking finance companies (including housing finance companies) and financial institutions, said a senior banker clued in to the development.
“Once an ARC buys a non-performing loan from a bank, the loan ceases to be in the books of the latter. Hence, it is important that information pertaining to the sale of the loan to an ARC as well as the extent of recovery of loan outstanding should get reflected in a CIC's system so that other lenders are in the loop, in case they want to check the borrower's credit history,” said Mr M. R. Umarji, Chief Legal Adviser, Indian Banks' Association.
Credit Information Bureau (India) Ltd, India's only operational CIC which provides details pertaining to credit facilities already availed of by a borrower as well as his payment track record, reportedly moved the RBI to allow ARCs to take membership of CICs. This move comes as banks are increasingly resorting to sale of NPLs to ARCs to clean up their balance sheets.
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