On September 16, the Reserve Bank of India (RBI) ordered commercial banks and NBFCs to stop providing unregulated entities access to consumer data held by credit information bureaus, reports The Economic Times. The RBI noted in its letter that commercial banks and non-banking lenders had appointed agents (such as fintech firms) and permitted them to access the database of credit information companies.

These credit information bureaus are directly regulated by the RBI’s Department of Banking Operations and Development. RBI has asked banks and NBFCs to give a update within 15 days about what they’ve done to curb such practices.

On September 17, RBI representatives met the heads of four credit information bureaus, TransUnion CIBIL, Equifax, Experian, and CRIF High Mark, to seek information about their ongoing practices, reports ET. In 2013, RBI had asked the banks and financial institutions to provide their existing and historic data to these credit information bureaus.

Giving data access to unregulated firms is against CICR Act 2005

As per the Credit Information Companies (Regulations) Act 2005 (CICRA), banks and NBFCs are mandated to report every retail loan to all four credit information bureaus- TranUnion CIBIL, Equifax, Experian, and CRIF High Mark. They also have to keep these credit bureaus updated on the repayment behaviors of the consumer. This allows lenders to use this data and evaluate the customers before giving loans.

  • As per RBI’s outsourcing policies for NBFCs and commercial banks, they are expected to keep the customers’ data in confidence. Because of this, the RBI has warned of banks and NBFCs, and regulated entities of penalties if any regulated entities violate its order.

How will this impact businesses?

  • The RBI order will affect the business models of fintech companies as many of them rely on the data to evaluate customers while they apply for loans through them. Online marketplaces such as SIDBI’s PSB Loans in 59 minutes platform could be impacted due to the restrictions.

However, this order could benefit start-ups such as Money Tap, who have secured its own and have moved away from loan sourcing business. Several other players have also either applied or are planning to apply for lending licenses.