In the dispensation of retail loans banks increasingly notice their hands tied by the mastercard history of applicants. The compensation history of all mastercard holders is recorded by Credit Information Bureau (India) Ltd (Cibil) and disseminated among banks.
Each private and non-private banks told Monetary Chronicle that taking selections on retail loan applications was becoming problematic as mastercard defaults had increased and loan applicants' record showed up on their computers. However the disputed accounts weren't mentioned in the history.
Bankers said there had been many cases where the ‘defaulters' would possibly not have been at fault, as credit cards were thrust on them, and charges piled on them even while their cases were below dispute. Routinely dubbing them ‘defaulters', card-issuing banks promptly sent adverse reports against them to Cibil.
Cibil the credit information company fashioned in 2004, hosts the credit record of borrowers of virtually the whole lending spectrum of the country -- banks, non-banking monetary corporations (NBFCs) and monetary institutions. The credit history of a loan applicant is made out there 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 typically refused, and applicants asked to kind 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 also the industry generally," he said.
G S Rekhi, chief general manager of credit at Punjab and Sind Bank, has had an identical experience. "We tend to are facing a major problem because of instances of credit card defaults reported by Cibil. An increasing range of our loan requests are obtaining blocked due to the adverse mastercard 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 boost the reporting system where disputed accounts can be brought to the notice of lenders," he said. Thukral didn't need to place a number to the cases of what he known as "credit card challenges".
Lending institutions said they did not keep a statistical record of loan denials. However, an extent of the malaise will 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 twenty six per cent of all complaints which numbered seventy five,000 throughout the year.
The amount of credit-card complaints itself increased by over seventy four per cent during the year, showing an uptrend. "The sorts of complaints still be those connected 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 could not provide the full picture, as several customers don't approach the ombudsman, choosing instead to strive and settle with their banks.
C S Jain, head of private banking at IDBI Bank, said that always the matter was thanks to outdated records with Cibil. "The pace of updation of Cibil records appears slow. We have a tendency to have return across cases where the Cibil report points to a default but the individual concerned features 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 tend to have upgraded our system over a amount of time. These days, it takes barely three or four days to upload data we have a tendency to receive. The info must be fresh and we tend to should rely on what lending establishments provide. Earlier, data were provided to us on a quarterly basis however now it's done every month. The task is enormous. We tend to host borrower information from over two hundred lending institutions," he said.
IDBI Bank's Jain said his bank had instructed its employees that adverse credit report showing defaults of up to Rs five,000 should be ignored where prima facie it appeared that the borrower was not at fault. "If defaults are bigger, then we tend to actually 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 once they ignored the Cibil report "if we have a tendency to 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 find the info rectified," the official said.
A State Bank of India official addressing retail loans, however, said Cibil's report was useful to the system. "It is a question of being able to properly interpret the report. Banks have to be told a way to assess the payment ability and probability of default primarily based on the report. The whole credit information system functions on the basis that it lets the remainder of the system grasp concerning what is happening elsewhere. We are still in a nascent stage," he said.
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