RBI’s Fortnightly Credit Reporting Mandate: A Step Towards Enhanced Transparency and Informed Lending

In a move that promises to reshape the financial landscape, the Reserve Bank of India (RBI) has mandated lenders to report credit information to Credit Information Companies (CICs) like CIBIL, TransUnion, and Experian on a fortnightly basis. This new directive, effective from January 1, 2025, marks a significant shift from the existing monthly reporting system and is designed to ensure that credit information reflects the most current financial status of borrowers. The change is expected to benefit both borrowers and lenders by enhancing the accuracy, timeliness, and reliability of credit data.

The Evolution of Credit Reporting in India

Credit reporting has long been a cornerstone of the lending process in India, with CICs playing a pivotal role in assessing borrowers’ creditworthiness. Traditionally, banks and other credit institutions reported credit information to CICs on a monthly basis, or at shorter intervals, as agreed upon. This system, while functional, often led to delays in the reflection of critical financial changes, such as loan repayments, in a borrower’s credit report. The RBI’s new directive aims to address these shortcomings by increasing the frequency of reporting to once every fortnight, thereby ensuring that credit information is always up-to-date.

Key Changes and Their Implications

Under the new guidelines, CICs and banks are required to update credit data on the 15th and last day of each month. The reporting of this data must be completed within seven days of the relevant reporting date, and CICs are now required to ingest the data within five days, a reduction from the previous seven-day window. This acceleration in the reporting process is expected to have far-reaching implications for both borrowers and lenders.

For borrowers, the immediate benefit lies in the faster updating of their credit information. This is particularly important when it comes to loan repayments, which will now be reflected more quickly in their credit reports. As a result, borrowers who are diligent in repaying their loans on time will see their credit scores improve more rapidly, potentially opening up access to more favorable loan terms in the future. Conversely, any delays or defaults in repayments will also be reported more promptly, allowing borrowers to address any issues before they escalate.

For lenders, the increased reporting frequency will provide a more accurate and up-to-date picture of a borrower’s financial situation. This is particularly critical in the context of digital lending, where credit profiles can change rapidly. By having access to the most current credit information, lenders will be better equipped to assess the risk associated with lending to a particular borrower. This, in turn, will lead to more informed lending decisions, reducing the likelihood of over-leveraging and helping to maintain the overall stability of the financial system.

The Role of Credit Information Companies

CICs like TransUnion CIBIL, Experian, and CRIF Highmark play a crucial role in the implementation of this new directive. These organizations are responsible for collecting and maintaining vast amounts of credit data, which they use to generate Credit Information Reports (CIRs) for lenders. The accuracy and timeliness of these reports are critical, as they directly influence lending decisions.

Rajesh Kumar, Managing Director and CEO of TransUnion CIBIL, highlighted the importance of this shift, noting that more frequent data reporting by banks and credit institutions will allow CICs to update credit records faster. This, in turn, will lead to more accurate and timely data being available to credit grantors, enabling them to make more informed lending decisions. Additionally, faster data updates will help in resolving consumer disputes more quickly, as any discrepancies in credit reports can be addressed and corrected promptly.

Challenges and Considerations

While the move to fortnightly reporting is expected to bring significant benefits, it also presents certain challenges. For one, banks and credit institutions will need to invest in upgrading their data management systems to handle the increased reporting frequency. This may involve additional costs and resources, particularly for smaller institutions that may not have the same technological infrastructure as larger banks. Moreover, ensuring the accuracy and completeness of the data being reported will be critical, as any errors or omissions could have serious consequences for both borrowers and lenders.

Another consideration is the potential impact on borrowers with low credit scores. While more frequent reporting will help to reflect positive changes in credit behavior more quickly, it will also mean that negative information, such as missed payments or defaults, will be reported more rapidly. This could lead to a situation where borrowers with low scores find it even more challenging to secure loans, as lenders become more cautious in their lending decisions. To mitigate this risk, it will be important for borrowers to be proactive in managing their credit and addressing any issues that may arise. Despite this, there are many new NBFCs on the market such as CreditSea that evaluate one’s creditworthiness more holistically, rather than solely depending on one’s credit score. 

Conclusion

The RBI’s decision to mandate fortnightly credit reporting represents a significant step forward in enhancing the transparency and accuracy of credit information in India. By ensuring that credit reports reflect the most current data, this move is expected to benefit both borrowers and lenders, leading to more informed lending decisions and a more stable financial system. However, the success of this initiative will depend on the ability of banks, CICs, and borrowers to adapt to the new requirements and ensure that credit data is reported and managed accurately and efficiently. As the financial sector prepares for the implementation of these changes in 2025, it will be important for all stakeholders to work together to ensure a smooth transition and realize the full benefits of this new reporting regime.