Byapaar.com -The Indian Business Blog

Just imagine what happens if the “title” of this post comes true sooner than later in India. Heard of Credit Rating? Being an Indian, I have only read about it on newspapers occasionally and sometimes found irritating SPAM mails on my inbox by some companies who were enticing me to make my credit score higher even if I had bad debt.

But don’t be surprised if you are denied a bank loan in the near future because of your bad credit score caused by intentional default or irresponsible financial management by you. On the other hand your loyal driver has been paying his mobile bills, gas bills regularly and hence he gets a a very high credit score. He gets cheaper bank loans, but you are denied.

Yes you guessed it right. If everything goes according to the plan the biggest names in credit rating industry ( such as Equifax and Experian ) will be opening their shops very soon infront of your office desk and decide on your eligibility for loans Quite scary! But thats what Indian government has been contemplating based on an assessment by a consortium of banks and financial institutions. They have already filed an application with the Reserve Bank Of India (RBI). So far there has only been one credit rating agency operating in India known s Credit Information Bureau Of India Ltd. (CIBIL). But its work has been limited due to absence of proper regulations. The government passed The Credit Information companies Act. only in 2005 that enables banks and financial institutions to reduce risks of bad debt and fraudulent activity. They can now share sensitive personal information of consumers with a recognized agency without taking permission from the person concerned. These agencies are to analyze the data and collect further information to build profiles of individuals to judge their eligibility for loans. People who gets higher score are to receive bank loans quicker and cheaper. On the other hand those with low scores might even get denied.

However the concept is still new in India and it remains to be seen how willing are banks and other institutions to part with the database. Another factor in this regard is how serious will the bank take on the analysis provided by these credit rating agencies. The government on the other-hand is trying to formulate a more detailed regulation making it mandatory for all banks to subscribe to at least one such agency.

So its going to be bad times for loan defaulter pretty soon. Be careful!

During his post-budget interaction with industry chamber the Assocham, Indian Finance Minister Chidambaram told that he felt home loan rates up to Rs. 20 million should be reduced and it is the duty of the RBI and other banks to see to it that the housing loan rate is slashed.

To quote Mr Chidambaram -

“I shall certainly bear in mind that there is public demand that interest rates for borrowers, who borrow (housing loans) up to Rs 20 lakh, must be lowered,”

According to Chidambaram, around 80 percent housing loans fall under the category of below Rs. 2 million and they carry a low risk for banking and credit industry. Hence, all banks should encourage to tend home to people by offering incentives and sops  through interest rate cuts. This would stimulate a lot of key industrial sectors.

The Finance Minister also lauded the efforts of RBI ( Reserve Bank Of India) Governor for drawing up a policy that maintains a balance between high rate of growth with that of low inflation.

The third quarter review of Indian Monetary policy released by the Reserve Bank of India recently revealed that RBI has decided to retain the key rates in a bid to maintain financial and price stability. Keeping in view of the domestic and international financial conditions, the RBI has decided to leave unchanged all key rates, including repo (7.75 percent), reverse repo (6 percent) and Cash Reserve Ration or CRR (7.5 percent). The stance of the policy is to contain inflation close to five percent while conditioning expectations I the range of 4 to 4.5 percent. The Gross Domestic Product (GDP) projection for the year 2007-08 also remains same at 8.5 percent. The flexibility to conduct overnight or longer term repo including the right to accept or reject tenders under the liquidity adjustment facility (LAF) wholly or partially is retained. The major highlights of the monetary policy include emphasis on credit for employment intensive sectors, reasonably positive prospects for industrial sector, favorable prospects for services etc