With banks becoming more and more vigilant about whom they lend to, services provided by credit bureaus, which rate a customer’s credit-worthiness, have become indispensable. In an interview to Business Line , Sanjay Patel, MD and CEO of Equifax Credit Information Services (India), dwells on these aspects and talks about the prospects of the credit scoring business.
There are already a couple of credit scoring agencies in India. Is there room for another player?
CIBIL began offering its services in 2005 and Experian and Equifax came later in 2010. So yes, we are a late starter. Almost 100 per cent of the market was catered to by CIBIL in the initial years.
But whenever new incumbents come, the overall industry gets better in terms of ability to understand the customers and provide the services they need. There is enough room for all of us. If you consider credit card as a parameter, the penetration is only 3-4 per cent compared to the 90-100 per cent penetration in US. So we have a long way to go.
Do banks necessarily approach 2-3 agencies before underwriting a loan?
There are two ways in which a credit bureau shares a relationship with the bank. One is contributing transaction data to the bureau and two, using the bureau for underwriting.
As of now, we get transaction data from about 90 per cent of the existing banks/NBFCs.
For the latter, say you are a bank and a customer approaches you for a home loan or a credit card.
Is Equifax the first choice to obtain the customer’s credit score? Yes and no.
Selectively, a number of institutions have started using our reports. But there is room for growth.
This is because one credit bureau need not necessarily capture all the credit lines of a customer. So a bank will be much better informed if it takes scores from more than one bureau. This is truer for big-ticket loans. That’s how it is globally too.
How would you evaluate a customer with no credit history?
A lot of variables go into building the score. Even in cases of no history, for example, assume someone has done a lot of enquires but has not yet obtained a loan.
This could mean that lot of banks have rejected the loan. One more example could be where a customer has four credit cards/credit lines.
He has never used those credit lines in the past but has suddenly started using them.
So behaviourally, he doesn’t use the credit cards; the fact that he is using them now could indicate he is under financial stress. So there are lot of parameters such as socio-demographic details which helps build the score.
Not only in India, this is the practice world over. The probability of default is not just a matter of having or not having funds, it is habitual. Broader economic situations in the country do come into play to change the score.
But the behavioural aspect cannot be ignored. If you don’t have the behaviour of paying your electricity bills or telephone bills on time, what does that reflect?
How do you handle customer grievances arising from non-updation of data/wrong data given to banks seeking their credit score?
If a customer comes to us and asks for his/her credit report, we provide them with the service for a fee.
But there may be instances like one bank having rejected your loan application (based on the score) and you claim that transactions reported with two other banks in the report is not right.
For example, you may come back and say that the report shows that you have outstandings on your home portfolio but you have already paid everything two years back and don’t have loans in your name now.
In such cases, we can do a transaction verification. The disputes are clarified by the bank. Sometimes these things do happen, but the number of such cases is negligible. Those rectifications are done.