The Reserve Bank of India made a strong case for setting up a public credit registry in India to address the twin balance sheet problem of the banking sector and the corporate sector.
About the registry
Public credit registry coverage reports the number of individuals and firms listed in a public credit registry with current information on repayment history, unpaid debts, or credit outstanding. The number is expressed as a percentage of the adult population.
- The repository can capture and certify details of collaterals, enable writing of contracts and prevent over-pledging of collateral by a borrower. “In absence of the repository, the lender may not trust its first right on the collateral and either charge a high cost on the loan or ask for more collateral than necessary to prevent being diluted by other lenders.” This leads to a spillover of one loan contract onto another.
- A PCR will help in a) Credit assessment and pricing by banks; b) Risk-based, dynamic and countercyclical provisioning at banks; c) Supervision and early intervention by regulators; d) Understanding if transmission of monetary policy is working, and if not, where are the bottlenecks; and, e) How to restructure stressed bank credits effectively.
- A transparent public credit registry would help the bankers to rely on objective data for making credit decisions and also enable them to defend their actions with market evidence when subjected to scrutiny.