Increased Credit Volumes
Credit Bureaus facilitate increased
lending opportunities for credit grantors while allowing easier
access to credit for borrowers. The existence of
credit bureaus in developed countries has facilitated increased
market penetration of credit (to more than 66% as a percentage of
GDP as compared to 3% for India) while keeping non-performing loans
in check (approximately 1% of outstanding credit).
Operating Efficiencies
- Credit Portfolio Quality
The use of CIRs accessed from a credit bureau will enable credit
grantors’ loan officers to accurately evaluate borrower
risk by making comprehensive credit histories available to decision
makers. The CIRs will facilitate an objective and transparent
assessment of credit applications. Concurrent borrowers and serial
defaulters will be identified and minimized early in the approval
process - consequently reducing associated recovery and write-off
costs. Similarly, premium borrowers will be identified and serviced
faster. Ultimately, CIRs will enable Members
to judiciously mix relationship-based lending and information-based
lending. CIRs will serve as the first level of due diligence
in the appraisal of a credit application.
- Speed and Cost
The use of CIRs will make processing loan
applications easier, faster and cheaper by sometimes eliminating
the need to additionally research and verify borrower details.
The average loan in India is sanctioned in 2-3 days. A credit
grantor using CIRs will be able to significantly reduce this turn
round time and thus have a competitive edge in the marketplace.
Differential Pricing
Owing to the lack of comprehensive credit information, all borrowers
are charged an interest rate with an assumed level of default risk.
This means that all borrowers are charged identical risk premiums
regardless of their payment history and thus pay a premium that
in developed countries is only applied to previously defaulting
borrowers. As credit grantors begin to use comprehensive credit
information they will be able to differentiate between good borrowers
and defaulters. In an increasingly commoditized credit market, credit
grantors will be able to use price in order to differentiate their
loan products.
In addition, borrowers who have diligently serviced their loans
in the past will be able to demand cheaper loans in the future.
Past defaulters will also have an opportunity to improve their credit
histories by servicing their debt obligations in a timely fashion
and thus earn access to lower interest rates.
The Indian credit industry has only recently begun to offer differential
pricing to their customers. As the credit environment becomes increasingly
competitive, CIRs will play a pivotal role in the speed and confidence
with which credit grantors will be able to increase their business
volume.
Hence, the use of CIRs will prove beneficial to both credit
grantors and borrowers.
Credit Grantors
The use of CIRs will enable loan officers to make objective and
informed credit decisions quickly, competitively and cost-effectively.
The use of CIRs will enable them to increase their lending volumes
and improve the quality of their credit portfolios while reducing
their delinquencies and loan processing costs. This will translate
into improved profit margins.
Borrowers
The widespread use of credit data will provide consumers with fast
and easy access to the lending resources they need while reducing
operating and risk costs for credit grantors. These reduce costs
will be passed on to an extent to consumers with demonstrated credit
performance in the form of lower interest rates. This easy availability
of reasonably price credit will provide borrowers with the means
to a higher standard of living.
|
