The RBI has formed a 10-member task force, headed by M Deosthalee, to suggest a roadmap for building a comprehensive Public Credit Registry (PCR) to improve market efficiency. What is a PCR and how will it impact credit culture in India?

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The RBI has formed a 10-member task force, headed by M Deosthalee, to suggest a roadmap for building a comprehensive Public Credit Registry (PCR) to improve market efficiency. What is a PCR and how will it impact credit culture in India?
Approach:
  • Introduce with what a PCR is and its objective
  • Make a note on the current scenario of credit assessment
  • Enumerate the benefits of PCR
  • Conclusion appropriately
Model Answer :
RBI has set up the Deosthalee panel to suggest roadmap for the creation of a Public Credit Registry (PCR) operated by the regulator. The PCR will be an extensive database of credit information for India that is accessible to all stakeholders. The idea is to capture all relevant information on the borrower and entire set of borrowing contracts and outcomes in one large database.
Generally, a PCR is managed by a public authority and reporting of loan details to the PCR by lenders is mandated by law. Private credit bureaus and public credit registry (PCR), generally operated by a central bank or a supervisory authority, work in tandem in most of the countries. However, in India, some private credit information companies provide credit scores and allied reports, and they are regulated by RBI under Credit Information Companies (Regulation) Act, 2005 (CICRA 2005).
Benefits Of PCR
  • A PCR can potentially help banks in credit assessment and pricing of credit.
  • It is required to improve the credit culture in our country. It has been demonstrated in the ‘Doing Business 2017’ report that credit information systems impart transparency in the credit market, following which access to credit improves and delinquencies decrease.
  • A central repository which captures the credit data will help in preventing overpledging of collateral by a borrower.
  • PCR can help in early intervention and effective restructuring of stressed bank credits.
  • It will also benefit start-ups, new entrepreneurs, and small MSMEs who are presently disadvantaged as they lack many of the desired qualifications (that big businesses have) for credit. Transparency of credit information would serve as a “reputational collateral” for such borrowers. This would not only help promote financial inclusion, but also reward the good borrowers thereby imparting credit discipline.
  • The PCR can also help RBI in understanding whether transmission of monetary policy is working, and if not remove the bottlenecks.
Conclusion:
The RBI has made a strong case for setting up a public credit registry in India to address the twin balance sheet problem of the banking sector and the corporate sector. This is a step in right direction by the RBI in tackling the growing menace of bad loans and asset quality of the banks. The database would help enhancing credit market efficiency, boosting financial inclusion, improving ease of doing business and controlling delinquencies.

Subjects : Current Affairs

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