RBI has issued updated guidelines to enhance transparency, improve credit reporting practices, and maintain the credit history of borrowers whose loans have been transferred from banks and Non-Banking Financial Companies (NBFCs) to ARCs.
Key Highlights of the Circular
The RBI circular introduces several important changes to align the credit reporting practices of ARCs with those followed by banks and NBFCs. The key provisions of the circular are summarized below:
Mandatory Membership with All CICs: The revised guidelines now mandate that ARCs must become members of all CICs operating in India. This is a significant change from the earlier requirement where ARCs only had to be a member of at least one CIC, as outlined in the 2010 circular (DNBS (PD-SC/RC). CC. No. 23/26.03.001/2010-11). By broadening the scope of membership, the RBI aims to ensure that ARCs provide comprehensive and uniform credit data across all CICs, leading to better tracking of borrowers’ credit histories.
Regular Submission of Data: ARCs are required to regularly submit borrower data to CICs on a fortnightly basis or at intervals mutually agreed upon by the ARC and CIC. This aligns with Regulation 10 of the Credit Information Companies Regulations, 2006, which stresses the timely submission of credit data to maintain accurate and updated credit histories. Frequent updates will improve the quality and reliability of credit reports and help both borrowers and lenders monitor creditworthiness effectively.
Rectification of Rejected Data: In case CICs reject any data provided by ARCs due to errors or discrepancies, ARCs are required to rectify and resubmit the corrected data within seven days of receiving such a rejection. This provision underscores the importance of maintaining the accuracy of credit information and ensures that mistakes are promptly corrected to prevent any adverse impact on borrowers’ credit scores.
Adoption of Best Practices and Standard Operating Procedures (SOPs): ARCs are expected to adopt best practices for managing CIC-related activities and have an SOP in place for handling credit information. The SOP should cover essential procedures such as ensuring that all relevant customer and loan information is submitted to CICs, regularly updating records, and reporting repayments without delays. ARCs are also required to centralize the issuance of no-objection certificates to avoid issues related to non-updation of repayment data.
Customer Grievance Redressal: The circular places strong emphasis on the need for ARCs to prioritize customer grievances, particularly those related to the accuracy and updating of credit information. ARCs are required to have a dedicated grievance redressal mechanism in place and must address customer complaints efficiently. This aligns with the existing regulations under the Credit Information Companies (Regulation) Act (CICRA) and the related rules and regulations.
Monitoring and Compliance: The RBI has directed ARCs to monitor deviations from the stipulated timelines for updating and rectifying credit information. Such deviations should be reported and reviewed periodically by the Board of Directors. This ensures accountability and reinforces the importance of timely submission and correction of credit information.
Implications for ARCs and Borrowers
The revised guidelines are a crucial step toward enhancing the transparency and reliability of credit reporting in the financial system. By mandating membership with all CICs, the RBI ensures that ARCs provide uniform and comprehensive data, which helps in the accurate assessment of credit risk. For borrowers, this means that their credit history will be more consistently tracked, even after their loans are transferred to ARCs, ensuring that their repayment behavior is adequately reflected in their credit scores.
