RBI’s New Credit Reporting Rules Explained: What Consumers Should Know

Introduction:

According to RBI, the Master Direction — Reserve Bank of India (Credit Information Companies) Directions, 2023 integrates the existing framework for financial institutions and credit bureaus and will enable better credit data management in a smoother and responsible credit reporting system from the perspective of all the stakeholders.

About the Master Direction:

A key highlight of these new rules is the introduction of strict timelines for updating and correcting credit records. If a financial institution fails to update credit information within 21 days, or if a Credit Information Company/ credit bureau (CIC) does not resolve a complaint within 30 days, the affected consumer is entitled to Rupees 100 per day in compensation. The RBI has however retained the fortnightly updating of credit information by CIs to the CICs. To keep consumers updated, credit bureaus will now send SMS or email alerts when a Credit Information Report (CIR) is accessed. Financial institutions are also required to inform customers when default or overdue payments are reported. “Only by knowing where you are, you can prevent unauthorized access and help consumers track their credit history.”

It also clarifies and strengthens the process for handling complaints. Banks should have dedicated Nodal Officers to handle all types of credit-related grievances, which would lead to quicker response times. If a request for correction is denied, reasons for the decision must be clearly articulated and explain why its irrelevant; these reasons must be standardized to achieve consistency. Moreover, financial institutions must conduct root cause analysis of complaints twice a year based on data rejection reports and Data Quality Index (DQI) metrics to identify and rectify issues occurring as a barrier.

Regular checks and audits of data-matching algorithms are essential in ensuring the accuracy of the data, with changes being reported to their boards of directors. To support this, credit bureaus will collaborate with industry bodies like the Indian Banks Association (IBA) and the Micro Finance Institutions Network (MFIN) to educate lenders on the best ways to use credit reports in their evaluations.

They must also produce DQI scores for various lending segments, including consumer, commercial, and microfinance, to demonstrate to financial institutions that better data submissions will result in higher DQI scores. Lenders will also be incentivised to pull the Credit Information Report from more than one Credit Information Company (CIC) before making a credit decision and, as a result, loan approvals will become more accurate. To support this, credit bureaus will collaborate with  institutions like the Indian Banks Association (IBA) and the Micro Finance Institutions Network (MFIN) to educate lenders on the best ways to use credit reports in their evaluations.

For financial institutions classified as secured creditors under the SARFAESI Act, 2002, the new rules require them to publicly disclose information about borrowers whose secured assets have been repossessed. This measure increases transparency and ensures that asset recovery processes remain fair. Additionally, financial institutions must adhere to strict deadlines for updating and resolving credit information disputes. Any delays must be reported to the RBI’s Department of Supervision every six months.

In order to ensure fair competition, RBI decided not to make one certain format for CIRs (Credit Information Reports). However, credit bureaus will standardize the key terms and essential fields that consumers and lenders need to compare them. Moreover, financial institutions are required to let credit bureaus know their data acceptance criteria to eliminate the possibility of rejections. RBI has also provided precautionary guidelines making prior consent of the borrower, due diligence, entity obligations, data protection and annual IS audit essential to prevent possible misuse and to protect the sensitivity of the personal credit information of the borrower while sharing the information with a third party who is not a Specified User (SU). Banks or other financial institutions will have seven days to correct, if credit information in the CIR is incorrect and resubmit the information. The significant change that occurred is that all financial institutions are now obliged to join every RBI-registered credit bureau, which guarantees full credit data coverage. To minimize expenses, the RBI set a ₹10,000 limit for one-time membership fees and a ₹5,000 limit for annual fees. The RBI has also provided for the constitution of Technical Work Group (TWG) and its sub-groups to keep up with the dynamic data reporting environment.

Conclusion:

The initiative of the Reserve Bank of India is meant to provide more reliable, fair, and consumer-friendly credit reporting by implementing the above regulations. The moves to empower consumer rights, that will enable them to have their own credit reports, will accompany it along with regulations to fine financial entities that refrain from reporting the changes, and informing the lenders properly. To the lenders, accuracy will mark them to be the victors in the process of getting access to essential credit information. Eventually, these amendments will play a crucial role in bringing out an equal and a clearer credit landscape for all.