Credit registry: RBI Act may need tweak

• The Reserve Bank of India Act, 1934, may need to be amended to facilitate the setting of a public credit registry (PCR).

• The PCR is planned as an extensive database of credit information for all credit products in the country from point of origination of credit to its termination.

• Its main benefit would be to provide lenders with a 360-degree view of the borrower’s outstanding credits and past performance. This would allow better screening at the time of providing credit and superior monitoring during the life of the borrowing.

• There are some legal issues around setting up the PCR. While the PCR is initially being set up within the existing RBI infrastructure, the fact that the RBI as a statutory corporation can only engage in those activities that are permitted by the RBI Act, or other relevant legislation, creates complications.

• In addition to its core central banking functions, RBI also performs certain promotional functions which are only limited to ‘financial institutions’.

• Since no financing activity is contemplated for the proposed PCR, it might be difficult to label PCR as ‘financing institutions.’ This takes it out of the purview of a promotion under the Reserve bank of India Act, 1934.

Other Options

• Another option would be to promote an organization for a matter incidental to the functions of RBI – as part of the RBI Act or Banking Regulations Act, 1949.

• Collection of information, including credit information, from regulated entities, is an important aspect of the RBI’s regulatory and supervisory functions and hence such an activity could be done by setting up a subsidiary or a department.

• Otherwise, the Reserve Bank of India Act, 1934, can be suitably amended conferring the Reserve Bank powers to conduct the business of PCR.

• In October 2017, RBI had set up a high-level task force chaired by Y M Deosthalee to review the availability of information on credit and assess the gaps.

• The task force submitted its report on April 4, 2018, recommending that a PCR should be set up by the RBI in a phased and modular manner.

Share article