The credit reporting industry is growing worldwide, spurred by technological innovation and the liberalisation of financial markets. Macroeconomic forces, both positive and negative, have also encouraged the development of credit reporting. When lending is short term, the data in a credit registry is less important than a firm’s cash flow or person’s liquidity; but when terms grow too many months or years, data on past behaviour becomes a more important indicator of likely repayment. At the same time, economic crises which have roots in financial sector distress, have also encouraged some nations to establish or fortify credit registries. The data registries contain a critical input for credit evaluation and portfolio management by financial institutions in most developed economies and many developing ones. Despite their central role in credit markets, little information exists on these registries, or on other related aspects of a nation’s credit reporting system, such as the legal and regulatory framework for credit reporting and availability and use of value-added services such as credit scoring. It has been demonstrated in the ‘Doing Business 2017’ report that credit information systems impart transparency in the credit market, following which access to credit improves and delinquencies decrease. At present, several Indian banks burdened with mounting Non-Performing Asset (NPA) appear less confident in taking credit decisions. A transparent PCR 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. One of the reasons the credit information is termed as a ‘public good’ is its utility to the credit market at large and the society in general. In the absence of a central database of credit information, the creditors are restricted to the information they have about their clients based only on their limited transactions or interactions with the clients and this could lead to suboptimal outcomes. Realising the urgent need of credit data registry, RBI is in the process of setting up a PCR for the nation. This article attempts to bring out the broad picture of PCR, its needs and benefits, International experience with PCR, challenges and way forward in establishing the PCR, etc.
What is a PCR?
PCRs the world over share a basic framework, in terms of their institutional arrangements, the type of data which is collected and their policies regarding distribution of credit data to participating financial institutions.
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