The introduction of financial sector reforms has brought to fore the extent of non-performing assets (NPAs) and the management of NPAs in the banking system. It has become imperative to arrest accretion of fresh NPAs in the banking sector through an efficient system of credit information on borrowers as a first step in credit risk management. In this context the requirement of an adequate, comprehensive and reliable information system on the borrowers through an efficient database has been felt by the Reserve Bank of India (RBI), the Central Government, credit institutions and other players in the banking and financial sector.







2. The Reserve Bank of India had constituted a Working Group to explore the possibility of setting up a Credit Information Bureau (CIB). The Working Group observed that it would not be possible to set up a world class credit information company within the existing legal framework. The legal prohibition on disclosure of information contained in various laws relating to banking do not permit banks and financial institutions to share credit information with the credit information company. Besides, the power vested with the Reserve Bank of India under Chapter III A of the Reserve Bank of India Act, 1934, to collect and furnish credit information from banks or financial institutions cannot be delegated by it to another institution. Therefore, amendments would be required in various enactments. The Working Group submitted its report in October, 1999 and recommended amongst other things (a) enactment of a legislation for facilitating collection and sharing of information by the proposed bureau and (b) to amend certain Acts relating to banking to permit sharing of information with the said bureau.







3. A Credit Information Bureaus (India) Ltd., being a company formed and registered under the Companies Act, 1956, has already been set up in January, 2001. With a view to provide necessary legislative support to the business of credit information, it is proposed to enact a legislation, namely, the Credit Information Companies (Regulations) Bill, 2004 for regulation of credit information companies and to facilitate efficient distribution of credit. The Bill, inter alia, contains provisions for:-







(a) prohibition to commence or carry on business of credit information without obtaining a certificate of registration from the Reserve Bank of India;







(b) procedure for making application for grant of certificate of registration, grant of certificate of registration, cancellation of certificate of registration and appeal against order of rejection of an application for grant of certificate of registration and cancellation of certificate of registration;







(c) requirement of minimum capital;







(d) management of credit information companies;







(e) conferring power upon the Reserve Bank of India to determine policy in relation to functioning of credit information companies and also giving directions to credit information companies and other players in the business of credit information;







(f) functions of credit information by credit information companies;







(g) collection and furnishing of credit information companies;







(h) powers and duties of auditors;







(i) obtaining of membership by credit institutions of credit information companies;







(j) information privacy principles;







(k) alterations of credit information files and credit reports;







(l) regulation of unauthorised access to credit information;







(m) offences and penalties;







(n) obligations as to fidelity and secrecy;







(o) resolution of disputes between credit institutions and credit information companies or between credit institutions and their borrowers;







(p) exemption from any or all the provisions of the proposed legislation to any credit information company or credit institution; and







(q) amending certain enactments specified in the Schedule to the Bill so as to permit disclosure of credit information under the proposed legislation.







4. The existing legislations in force do not address these aspects of credit information companies and their functioning.







5. The Bill seeks to achieve the above objectives.