In a strong move, Reserve Bank of India has stopped and banned all banks, wallets and other non-banking financial companies from sharing or revealing credit data of users with others.
In the last two-three years, tons of new fintech companies have been launched, which used this credit data of users, and based their services on this data.
It would be a big blow to such companies, as they cannot use the credit data of consumers now.
How will they run their business now?
RBI: No More Sharing Of Credit Data
In a strongly worded letter to all banks and NBFCs (for example mobile wallets), RBI has stated that they are violating the Credit Information Companies (Regulation) Act, 2005 (CICRA), by appointing agents who access consumer data, and share them with 3rd parties.
Banks and NBFCs have access to the complete database of credit information companies, and in turn, they provide this access to 3rd party agents and employees, which will now stop.
In fact, RBI has also asked all the banks and NBFCs to share details on how they aim to stop this practice, and they need the reply within 15 days.
How Your Credit Data Flows Right Now
As per Credit Information Companies Regulation Act, every bank and NBFC is required to share report on retail loans with the 4 main Credit Bureaus in India: TransUnion CIBIL, Equifax, Experian and CRIF High Mark.
Now, this information is needed for other lenders to checkout repayment habits of the consumers, which in turn help them to approve the loans.
Banks and NBFCs are required by law to keep this data confidential, but in recent times, they have started to share the access of this data with fintech companies and other 3rd parties.
This practice will now stop.
An unnamed person who is aware of this practice said that IT firms, analytical firms, marketing agencies and other 3rd parties have been freely accessing this data for quite some time now.
He said, “This kind of outsourcing model has been prevalent for a few years. These agents include online marketplaces, IT companies, analytics firms and institutional agents.”
Who Will Be Impacted By This?
Fintech startups and online market places of financial services will be severely impacted by this decision, since they relied on this data, to determine the credit-worthiness of the user.
For instance, SIDBI’s PSB Loans in 59 Minutes platform can be impacted by this decision.
Founder of one such startup said, “This will be a major blow to the sector. Though we rely a lot on non-financial data sources, we do take bureau data as one of the information points. Now we will not have any visibility on the past credit behaviour of the customer,”
On the other hand, startups which have already received NBFC license from RBI will benefit from this decision, as now, the credit data would be exclusive to them.
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