Viral Acharya, professor of finance at New York University (now Deputy Governor at RBI), speaks during an event at the New York Stock Exchange (NYSE) in New York, U.S. (Photographer: Jin Lee/Bloomberg)

Public Credit Registry, GSTN To Help Improve Access To Credit: Viral Acharya

Reserve Bank of India Deputy Governor Viral Acharya reiterated the case for a Public Credit Registry, arguing that it would be one step in increasing the access to credit in India.

Speaking at a banking conclave in Mumbai on Monday, Acharya argued that the PCR, together with the information collected under the goods and services tax framework, would improve the access to quality information about potential borrowers. He added that at present, India’s credit-to-GDP is much lower than economies like China, U.S. and U.K. A credit registry could help improve that.

The PCR and the GSTN are two giant strides that utilize modern technological advances for improving information access and quality. Together, they hold the rich promise of enabling us to democratise and formalise credit in India.
Viral Acharya, Deputy Governor, RBI
Public Credit Registry, GSTN To Help Improve Access To Credit: Viral Acharya

Work-In-Progress

The PCR was first suggested by Archaya a year ago.

In October 2017, a task force was set up to look into the matter. The committee submitted its report in April. In June, RBI put the report in public domain and said it “has considered the recommendations of the Task Force and decided to set up a PCR in a modular and phased manner.”

Speaking on Monday, Archaya explained that the regulator had faced serious difficulties in getting data on corporate bad loans when the clean-up of bank balancesheets began. This, despite the fact that private credit bureaus had been operating in India for some time.

The data is simply not being reported with integrity and full coverage in case of large corporate borrowers, Acharya said.

Following this, the regulator had set up the central repository for information on large credit. The Asset Quality Review that followed in 2015 relied heavily on CRILC data.

“The credit information system, as a whole, has many such gaps which leave much scope for improvement,” Acharya added.

According to the deputy governor, a PCR would help Indian lenders get a 360 degree view of a borrower’s dues and past performance. This would allow for better screening at the time of giving credit.

Interplay of PCR-GSTN

Acharya went on to argue that the PCR can use information lying in others parts of the system, such as the MCA database and GSTN.

“Together, these sub-systems create a universe of verifiable information and allow safe access to the data for all important stakeholders in the financial system,” he said.

Acharya pointed out that the input tax credit motivation is a strong push towards digitisation and formalisation of small businesses. Moreover, the acceptance of invoices by the buyers creates a trusted repository.

“We know they aren’t just cooking their books; they have verified buyers at the other end who vouch for the invoice generated. This gives one a potentially penetrative view into the otherwise invisible 10 million businesses that are now on GSTN, uploading roughly 1 billion plus invoices every month,” Acharya said.

Eventually access to all this data will improve the access to credit and allow banks and financial institutions to design products more effectively.

Just like in the Fast-moving Consumer Goods (FMCG) sector, banking and access to credit too will be ‘sachetized’ to make it more accessible and affordable for the masses. We want that even a small tea shop vendor should be able to take a 500 rupee loan at fair rates, say, for only a week, based on such data.
Viral Acharya, Deputy Governor, RBI

PCR: The Legal Angle

To be sure, the setting of a credit registry of this nature would need legislative changes.

For one, the RBI can only undertake activities permitted by the RBI Act. A credit registry may not fallen under the purview of the RBI Act. One option could be to amend the RBI Act to allow it to operate a credit registry, said Acharya.

The PCR would also run into confidentiality concerns.

To be effective, the PCR would need to draw information from different sources. To this end, the PCR will have a consent-based architecture, said Acharya.

“The consent based architecture of the PCR will strengthen privacy of data subjects by ensuring that the data is accessible only to the data consumer, only for stipulated period of time and only for a stipulated purpose, as consented to by the user,” said Acharya.

Finally, he added that a PCR Act may be needed to ensure that all governance aspects of the credit registry are covered.