Companies & Sectors
CIBIL: Customers Continue To Suffer

Who checks the quality of technology or data-matching algorithms used by CIBIL or the other credit bureaus? What is the redress process, when it fails?

At Moneylife’s ‘Open House’ with RBI deputy governor Dr KC Chakrabarty on 3rd June, an angry customer stood up to complain about Credit Information Bureau of India Limited (CIBIL), which practically enjoys a monopoly of the credit bureau business. On 4th June, we received an angry letter from one Umesh Dhawan whose Rs5-lakh loan was rejected because he was shown as a defaulter by CIBIL. He was under the impression that his banker had reported him. But we discovered that the problem was far worse. CIBIL apparently used its own algorithm to match data and ended up mixing his data with that of another person called Umesh Uhawan. Once again, the question is: Who checks the quality of technology or data-matching algorithms used by CIBIL or the other credit bureaus? What is the redress process, when it fails?

CIBIL claims that the number of incorrect credit data, because of inaccurate matching of information, is low and on par with credit bureaus of similar size abroad. Who will verify if this claim is true? And how is a customer going to be compensated for the untold harassment suffered? If, as CIBIL claims, the mismatch of data leading to wrong reporting is so low, surely, RBI can mandate compensation for customers. At present, CIBIL gets away with a vague regret letter and a correction of records, when its goof up and poor redress mechanism can ruin the financial life of its hapless victim.

 

NOTE: If you are facing similar issue, you may want to get help from Moneylife Foundation's free Credit Helpline http://www.freecredithelp.in/

User

COMMENTS

Ashok Kumar Bhargava

4 years ago

The matter is not as to what we have to pay to get our report.My emphasis was on customers reach to the data so that if some error is there it can be pointed out by the customer/client and rectification thereof is sought without delay as had been the case with Shri Dhawan.

Umesh Dhawan

4 years ago

I have recieved the following mail from CIBIL after 4 Reminders
--------------------------------
Dear Sir,

We refer to your email dated 14/6/2013 regarding your CIBIL Report.

At the outset, we apologize for the delay in response.

We would like to inform you that our Managing Director is currently travelling. We are looking into the issue and will revert to you shortly.

Thanking you.

Best Regards,

Berly Varghese
____________________________________________
Credit Information Bureau (India) Limited
Hoechst House, 6th Floor,
193, Backbay Reclamation,
Nariman Point,
Mumbai 400 021, India
_____________________________________________

Umesh Dhawan

4 years ago

I have recieved the following mail from CIBIL after 4 Reminders
--------------------------------
Dear Sir,

We refer to your email dated 14/6/2013 regarding your CIBIL Report.

At the outset, we apologize for the delay in response.

We would like to inform you that our Managing Director is currently travelling. We are looking into the issue and will revert to you shortly.

Thanking you.

Best Regards,

Berly Varghese
____________________________________________
Credit Information Bureau (India) Limited
Hoechst House, 6th Floor,
193, Backbay Reclamation,
Nariman Point,
Mumbai 400 021, India
_____________________________________________

Sucheta Dalal

4 years ago

Mr Nandy's comment is excellent. While there is so much criticism about HDFC Bank it is very nice to hear they didnt not charge anything for a credit report!

Umesh Dhawan

4 years ago

I have still not received any call back from CIBIL regarding the loss suffered by me. They think they are going to get away with it. They are harassing people.

Umesh Dhawan

4 years ago

I have still not received any call back from CIBIL regarding the loss suffered by me. They think they are going to get away with it. They are harassing people.

Umesh Dhawan

4 years ago

I received a call from CIBIL in which they told me that they will get back to me regarding compensation for the loss suffered by me. It has been 5 days and they do not have the coutesy of calling me up again. This despite I have sent a mail to their Managing Director. Pathetic is the Word for CIBIL.

Umesh Dhawan

4 years ago

I received a call from CIBIL in which they told me that they will get back to me regarding compensation for the loss suffered by me. It has been 5 days and they do not have the coutesy of calling me up again. This despite I have sent a mail to their Managing Director. Pathetic is the Word for CIBIL.

Ashok Kumar Bhargava

4 years ago

Presently a customer has to pay arround Rs.400-500 to have their own Credit rating. I think CIBIL should allow a customer to see their own data of credit rating so that they can request for rectification if some thing wrong has been reported/posted in their database. This will help customers in getting the rating corrected if any factual error exists.

REPLY

Sucheta Dalal

In Reply to Ashok Kumar Bhargava 4 years ago

You can get your credit report from your bank by paying Rs50. Please read moneylife cover story on the subject.

Dayananda Kamath k

In Reply to Ashok Kumar Bhargava 4 years ago

so we pay them for correcting their mistakes. we are giving incentive for committing mistakes. this is how new businesses are generating income.

MDT

In Reply to Ashok Kumar Bhargava 4 years ago

Dear Mr Bhargava,
Thanks for your comment.
Kindly note a customer can receive his/her credit report for less than Rs150 (varies between credit bureaus). Similarly, CIBIL charges over Rs400 for Credit Score. You may also want to read http://www.moneylife.in/article/credit-s... ; http://foundation.moneylife.in/?th_galle... and http://www.moneylife.in/article/who-is-a...
Thanks
MDT

R Nandy

In Reply to MDT 4 years ago

I had requested the credit report via HDFC Credit Cards.They have a form for making the request which needs to be posted to HDFC.It was written that Rs50 is charged for the credit report.But,they did not charge for it.I had requested it just for curiosity.

R Nandy

In Reply to R Nandy 4 years ago

This is the link:
http://www.hdfcbank.com/assets/pdf/CIBIL...

Dayananda Kamath k

4 years ago

who is to be blamed for this. it is the regulators only. they make everything compulsory using powers conferred in them, without putting in place a proper mechanism to implement the same and grievances redressal systems.

LK Advani quits all BJP posts

The senior BJP leader has resigned from the party’s national executive, parliamentary board and election committee of the BJP, a day after Gujarat chief minister Narendra Modi was appointed as chairman of the election campaign committee
 

The rift in BJP was on Monday wide open with LK Advani quitting from all the party posts, apparently opposing the elevation of his one-time protégé Gujarat chief minister Narendra Modi as election campaign committee chief.

 

The 85-year-old Advani, a founder member of the BJP and considered the party patriarch after Atal Bihari Vajpayee, resigned from all main fora of the party—parliamentary board, national executive and election committee.

 

In his resignation letter to party president Rajnath Singh, who announced the appointment of Modi as chairman of the election campaign committee on Sunday in the BJP national executive, he rued that the BJP was no longer the “same idealistic party” created by Shyama Prasad Mookerjee, Deendayal Upadhyaya, Nanaji Deshmukh and Vajpayee.

 

“For some time I have been finding it difficult to reconcile either with the current functioning of the party, or the direction in which it is going,” he said.

 

“Most leaders of ours are now concerned just with their personal agendas,” Advani said in his one-page resignation.

 

Advani had skipped the three-day deliberations of the party in Goa over the weekend citing health reasons. This was the first time Mr. Advani had stayed away from the national executive and the office bearers’ meeting prior to it.

User

COMMENTS

MOHAN

4 years ago

Mr. L.K. Advani is a great leader. But what he has done now is nothing but impropriety.

Even a section of the people who are living in deep south and left leaning are tend to admit secretly that Mr. Modi should become the Prime Minister. Then why should Mr. Advani throwing a spanner in his works ?

Share buybacks by US companies ensure that “earnings” are high and rising

Most companies are swimming with money that they could use to expand their businesses. Instead they choose to repurchase shares. So is a buyback good for a company? By reducing the number of shares outstanding earnings are spread around among fewer shares

Although the American market is off about 3% in the last few weeks, the bulls will assure you not to worry. US earnings are very high and rising. They are at a record, 16% above their pre-crisis peak from 2007. Still this does not mean that they are overpriced. Their average price earnings ratios are not far above their historical average of 15. Earnings are forecast to continue to grow. Forecasts over the next 12 months for the US are supposed to rise by 20% above their pre-crisis peak. The bulls also point out that although the US Federal Reserve may slow the stimulus, it probably won’t stop it. The probability of an interest rate rise is far in the future. So the rally still has a long way to go. Or does it? Is there something more to the record earnings?

 

The problem with the record earnings is that they are not matched by record revenues. According to Reuters revenues are exactly flat, up 0.0% for the first quarter of last year. This presents a paradox. How can you get high earnings growth without revenue growth? One way is always to cut costs, but companies have been energetically slashing costs since the crash. There is always a limit to how much you can cut. Leverage with cheap Fed, money is always helpful. By gearing up the company, you can increase margins on fewer sales. But there is another way to use the cheap money: stock buybacks.

 

Stock buybacks have reached levels last seen before the recession. Stock buybacks peaked at $589 billion in 2007. They did not get that high last year. Companies spent only $408 billion on share buy backs. But the level of buybacks is increasing. In the first quarter of 2013, announced buybacks reached $214 billion, which if continued would easily outstrip the previous record. The trend is broad including some famous names. Apple recently announced a record $60 billion buy back. Blue chip firms like Merck, Wal-Mart and IBM have announced buybacks as have Sirius XM, Safeway the American grocery chain and CVS, a pharmacy chain.

 

Most companies are swimming with money that they could use to expand their businesses. Instead they choose to repurchase shares. So is a buyback good for a company? It always seems so. Most announced buybacks result in a rise in the company stock. Share buybacks in the US is tax favoured. Paying out extra cash as dividends will result in ordinary income to the shareholder, which is taxed at a rate higher than the capital gains resulting from the purchase of a stockholder’s shares.

 

Buybacks at the right time can also be useful. If management thinks the shares are undervalued it makes sense. This argument hardly applies today. Most developed countries’ markets are up over 20% this year alone. It would be hard to argue that they are cheap.
 

But there is a downside to buybacks, in that money used for buybacks might be better used for research and development, expanding the business or replacing ageing assets. For example Dole Foods supplies much of the US with many types of fresh tropical fruits. On 9th May it announced a $200 million share buyback. Almost a month later the board changed its mind and decided to update its shipping fleet with the acquisition of three new specially-built refrigerated container ships for its US West Coast operations, costing approximately $165 million. These new ships replace the present ones that are 27 years old.

 

A buyback often boosts companies’ shares, but the bump may not last. Studies show that companies that spend the most on share repurchases tend to underperform, because they don’t invest enough in operating or building their businesses for the long-term.

 

Share buybacks have another effect. They increase earnings. By reducing the number of shares outstanding earnings are spread around among fewer shares. So after a buyback earnings will increase even though profits are flat. It is estimated that buybacks have contributed nearly a fifth to the growth of per share earnings.

 

This last reason may be cause for some scepticism about the motives for share buybacks. Executive compensation is often tied to the management’s ability to meet per share earnings targets. If revenues are stagnant an easy way to meet the goals is to borrow a lot of money and buyback shares. Research shows that companies that tie executive pay to per share earnings are more likely to use accelerated share repurchases.

 

For example, the American grocery store chain, Safeway, has been experiencing a lot of competition from Wal-Mart. Its sales are flat and its margins narrowed. Nevertheless it experienced a 61% rise in per share profit last year. These did not come from cost cutting or rising revenues. The jump in earnings was due to an aggressive a $1.2 billion share buyback that reduced its outstanding shares by 28%. The buyback was funded with cheap money thanks to interest rate suppression by the Fed. Its shares have risen, but one of the largest beneficiaries was the CEO Steven Burd who was awarded a $2.3 million bonus.

 

Share buybacks can distort prices another way. With fewer shares on the market, lesser shares are traded. Liquidity dries up. A smaller number of trades can have a larger effect on the price of the stock. But it goes both ways. This year it has pushed stocks up, but it can also push stocks down just as fast.

 

Corporations are also very bad at timing. Rather than buying low and selling high, they do the reverse. Share buyback peaks and troughs align nearly perfectly with peaks and troughs of the S&P 500. This is for a very simple reason. In good times when the market is high, companies are flush with money and can buy their own shares. When the market is down, there is less cash for repurchases. So the present rally has been both fuelled by share buybacks often at record prices.

 

There is another conflict of interest associated with share buybacks. Large buybacks usually are correlated with high volumes of insider trading. A normal ratio of selling to buying by corporate insiders is $8 worth of shares sold for every $1 bought. According to TrimTabs Investment Research, this February insiders sold $35.50 worth of shares in their own companies for every dollar they bought. This is the highest monthly ratio since the firm began tracking the data in 2004. So insiders are in part-selling their own expensive shares to the companies they manage.

 

According to estimates share buybacks may have pushed earnings and hence their market value up 40% higher than they actually are. Much of these buybacks were accomplished with cheap QE stimulus funds. This was part of the purpose of QE, to raise stock market prices and encourage consumer spending through the wealth effect. Sadly the wealth that the stimulus has created might be simply an illusion. When the Federal Reserve and other central banks start winding down their stimulus programs, which they must do eventually, we will find out how much actual wealth there is. Even if they don’t, firms can’t keep using buybacks to boost their earnings. Eventually they have to grow profits. If they can’t, because the stimulus has failed to actually grow the economy, then the magic will definitely be over.

 

(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages.)

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