CIBIL Scores Need Improvement

CIBIL Score

I was wondering why the lenders keep offering a personal loan in 24 hours to a few persons and how they get to know my mobile number to call repeatedly.  When I looked at my CIBIL score card, I got the hang of it all. Banks subscribe to the CIBIL and access the data.

All the Banks in India look to CIBIL score when it comes to assess the credit risk of a person. While inducting on the Boards of companies, the directors are also assessed through this score. All the basic identification data of a person, like the PAN, Voter ID number, Aadhar number and mail address are also available in the first sheet of the score. It also provides the residence and the mobile phone numbers.

It generally offers transunion score and personal loan score. The score 300-900 ranges from high to low meaning that if a person is at 300 he is at high risk and less deserving for a loan and at 900 he is at the lowest risk indicating the best bet for lenders. When I looked at the detail, some surprises have really put me off.

The office address mentioned there was that of 1995. Analytics related to 1995-2015. When they furnish the score in fourth quarter of 2017, the data is almost two years old. Anything could have happened during these two years that could either improve the position or otherwise. I retired in December 2001. Post retirement, a person’s financial data will be far different from the earlier period.

Luckily for me there was no adversity in financials and therefore, the score was excellent. But when one installment on a personal loan was delayed by a day due to the bank not following the standing instruction has led to a negative score in that year. CIBIL does not have to bother as to how a particular person behaves when it actually comes to a default. Banks go only by an acceptable score for their assessment while behavior of a client matters more than the score.

Another friend of mine, a retired top executive of RBI, post retirement, guaranteed his daughter employed in a leading PSB, a car loan whose installments are deductible from the monthly salary. This standard asset was shown as a liability in his score card though there was no pendency or delinquency on his part.

Two things have surfaced prominently. CIBIL does not get the latest updates on an ongoing basis on its listed persons. Second, its readings are totally mechanically. For want of a better institutional mechanism in tracking credit behavior banks and other lending institutions depend upon such data. 

Many a deserving entrepreneur seeking credit consequently suffers.

Access to data by CIBIL – is it a problem because lending institutions do not share or is it because CIIL’s ability to access data has serious limitations. In either case the situation needs improvement.