CIBIL, Fair practices code fordebt collection & banking codes & standards board of India
Credit Information Bureau (India) Ltd.• Ownership Structure: CIBIL, India’s first credit information bureau was established by SBI and HDFC, with a shareholding of 40% each, while Dun & Bradstreet Information Services India Private Ltd (D&B) and Trans Union International Inc. (TU) hold 10% each.• CIBIL is a repository of information, which contains the credit history of commercial and consumer borrowers.• CIBIL provides this info. To its members in the form of credit information reports (CIRs)
• RBI in its ‘Annual Monetary and Credit Policy’ for the year 2004-05, had stated that in respect of credit bureaus, ‘it is desirable that the objective should be to move towards a sufficiently diversified ownership with no single entity owning more than 10% of the paid up capital in the first stage and 5% later’.• As on 31 Dec. 2006, HDFC, SBI,ICICI Bank, D&B and TU (Trance Union), hold 10% stake each in CIBIL., whereas Citicorp Finance (India) Ltd., Standard Chartered bank, HSBC, Punjab National Bank, Bank of India, Central Bank of India, Union Bank of India, Bank of Baroda and Indian Overseas bank hold 5% stake each, while the remaining 5% is equally held by GE Strategic Investments Ltd. and Sundaram Finance.
Functions of CIBIL• It is a composite credit bureau, which caters to both commercial and consumer segments. The Consumer Credit Bureau covers credit availed by individuals while the Commercial Credit Bureau covers credit availed by non-individuals such as partnership firms, proprietary concerns, private and public limited Co. etc.• The aim of CIBIL’s Commercial Credit Bureau is to minimise instances of concurrent and social defaultsby providing credit information, pertaining to non-individual borrowers such as public ltd. companies, private ltd. co. , partnership firms, proprietorships, etc.• It maintains a central database of info. As received from its members.
• It collects and sisseminates this info.on demand to members in the form of commercial Credit Information Reports (CIR) to assist them in their loan appraisal process.
Fair Practices Code for Debt Collection• Demand for Lenders’ Liability Law:• The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act was enacted in India in 2002.• The Act allowed banks to take possession of assets of defaulting companies without going through the cumbersome legal process.• On the basis of the recommendations of the working group on Lenders’ Liability Laws constituted by the Govt. of India., RBI, in consultation with the Govt and some banks and financial institutions, finalised a set of codes called ‘the Fair Practices Code for Lenders’ and adised banks to adopt the guidelines.
• All the banks in India have framed their own set of Fair Practices Codes as per the guideline and implemented it from Nov. 1, 2003• General Guidelines: Applications for Loans and their Processing• A) Loan application forms in respect of priority sector and advances of up to Rs. 2 lakh should be comprehensive. It should include info. About the fees/charges,if any payable for processing. The amt. of such fees is refundable in the case of non- acceptance of application.
• B) banks and fin. Intuitions shall give acknowledgement for receipt of all loan applications. The time frame, within which loan applications up to Rs. 2 lakh will be disposed should also be indicated in acknowledgement of such applications.• C) Banks should scrutinise the loan applications within a reasonable period of time. If additional details/documents are required, they should intimate the borrowers immediately.• D) If small borrowers seeking loans up to 2 lakh, the lenders should convey in writing, the main reason which, in the opinion of the bank after due consideration, have led to rejection of the loan applications within the stipulated time.
• Loan Appraisal and Terms/Conditions:• A) lenders should ensure that credit proposal Is properly appraised after assessing the creditworthiness of the applicants they should not use margin and security stipulation a a substitute for due diligence on credit-worthiness.• B) Terms and conditions and other caveats governing credit facilities are arrived at after due negotiation with the borrower should be reduced in writing and duly certified by the authorised official. A copy of the loa agreement along with a copy each of all enclosures quoted I the loan agreement should be furnished to the borrower.
• Contd.• C) The lender should convey to the borrower the sanction of credit limit along with the terms and conditions thereof and keep the borrower’s acceptance of these terms and conditions on record.• D) as far as possible, the loan agreement should clearly stipulate that the credit facilities granted are solely at the discretion of the lenders. These may include approval or disallowing facilities, such as drawings beyond the sanctioned limits, honoring cheques issued for a purpose other than the one specifically agreed to in the credit sanction and disallowing drawing on a borrowal account on its classificationa s a non-performing asset