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The wealth of nations: Credit bureaux competition intensifies

In 2004, Indian regulation relating to the protection of data and other banking information was relaxed, allowing India's first credit bureau, Credit Information Bureau India Limited (CIBIL), to be launched. Since then this single bureau has held a monopoly and dominated the market place.

A competitive credit bureaux environment should boost the Indian economy and help to push the growth level Gross Domestic Product (GDP). Under the 2005 Credit Information Companies Regulation Act (CICRA), new credit bureaux were permitted to operate in India, under licence from the Reserve Bank of India (RBI), but until recently no new bureaux had entered the market.

Experian applied for a licence to operate in July 2007 and on 18th February 2010 was granted a full licence to operate a credut bureau by the RBI.

This endeavour, which saw the formation of the Experian Credit Information Company of India Private Limited, was a joint venture with seven of India’s leading public and private sector banks and non-banking financial institutions including; Axis Bank, Federal Bank, Indian Bank, Magma Fincorp, Punjab National Bank, Sundaram Finance and Union Bank of India. Experian has full responsibility for the operation of the credit bureau and holds a 49% stake in the company, which is the maximum permitted under the Indian Foreign Direct Investment regulations.

The joint venture has resulted in the first company to be awarded a full licence by the Reserve Bank of India (RBI) to operate a credit bureau in India under the new regulations.

The advantages that the Indian economy will derive from creating a competitive credit bureau marketplace will be, a drive to increase the quality of data available, as well as a greater level of choice for services and new value added products available to the market. An enhanced competitive environment will also generate movement towards global best practices in credit and risk management.

These advantages should subsequently lead to improved credit decisions and an increased amount of private sector lending, as well as the evolution of fairer lending practices. For these reasons, the RBI is keen to support data sharing initiatives and maintains that sharing of data should extend across all lenders and to all credit bureaux.

Data is to be shared for the prevention of over-commitment, bad debt, fraud and anti money laundering, as well as to support debt recovery and debtor tracing, with the aim of promoting responsible lending. Consequently, this approach should ensure that the benefits of multiple competitive credit bureaux operating in India deliver tangible economic rewards.

The role of competitive credit bureaux in the case of the Indian financial market can be summarised as follows:

1. To increase awareness of the availability of credit services and facilities, as well as to improve the levels of understanding around credit scoring and the importance of maintaining a good credit history.
2. To allow lenders to more accurately evaluate risks and to improve the overall quality of portfolios by lowering both bad debt and fraud levels.
3. To enable increases in credit volumes, as access to credit is extended to new consumer segments.
4. To facilitate prevention of over indebtedness and to guard against fraudulent activity both at an individual level and from organised crime syndicates.

Economic growth

With the worst of the global recession behind it, the Indian economy is likely to see growth stabilise before picking and strengthening in 2010/11. The downside risks are still potentially looming as prices may rise sharply owing to the fiscal stimulus and supply constrains.

Consumer demand almost came to standstill in 2008/09, falling to annual growth of just 1.6% in quarter two of 2009. As inflation remains high, and the prospect for the employment rates continues to be difficult and this condition is likely to remain in the short term. 2010/11 is likely to see some slow improvement, with household consumption growth in excess of 6% per annum projected over the medium term.

Utilising our knowledge of other markets, Experian is assisting enterprises in expanding activity inline with the short and long term predictions for growth.

The RBI’s decision to grant us the first full licence to operate a credit bureau in India signals the next phase of our development.  This creates a platform for us to introduce a wide range of new products and services to help India’s growing financial services and telecommunications sectors better acquire and retain profitable customers.

At this stage in the development of the Indian financial services marketplace, fraud detection along with collections and recoveries services are a key focus area for businesses. Experian is therefore expanding the availability of two of its market leading fraud and collections products, Hunter and Tallyman.

Another service that will be of benefit to the financial services companies of India is Connect+. This service allows organisations to access, consolidate and aggregate data from multiple credit bureaux and other sources within and across national borders by accessing a single system.

In addition, we are delighted to have someone of Phil Nolan’s expertise to lead the development of our new Indian Credit Bureau. His extensive experience of working in established and emerging markets, coupled with his firm understanding of the Indian financial sector, will further fuel our innovation in the marketplace.

Competition in the credit bureau business will fundamentally benefit customers. Competitive rivalry in emerging markets will force credit bureau organisations to introduce new services and deploy innovations that are already in use in more mature markets.

More importantly, competition will create significant investment in educating consumers in all areas of credit, from understanding and obtaining individual reports, to leveraging payment history to achieve better terms.

Through our services in three key areas, fraud, collections and accessing multiple credit bureaux, we are striving to support economic growth and promoting a culture of responsible lending for this emerging market.

Richard Fiddis
Managing Director
Strategic Markets
Experian