Damodaran Committee: Need to differentiate between settlements in credit reports

According to the RBI-appointed panel, there are a number of complaints about wrong reporting by banks to credit bureaus, which has serious implications on the credibility of a borrower

The Damodaran Committee appointed by the Reserve Bank of India (RBI) has said that there is a need to differentiate various settlements reported in the credit information reports (CIRs) of credit bureaus. The committee has pointed out, customers have complained that banks tend to view negatively a credit report indicating a 'settled' remark, when the intention of such a remark is merely to state that an account has been settled between a customer and a bank.

The committee, which was headed by M Damodaran, former chairman of the Securities and Exchange Board of India, has recommended that rules of credit bureaus should clearly differentiate the settlements done at a huge loss to the bank, from the routine settlements, where customers dispute fees and commissions.

"Evolving clarity in data reporting is an essential part of maturity in credit bureaus around the world and we believe that the recommendations are a positive step in this direction. Taken in conjunction with specific stipulations around the responses by banks and credit information companies (CICs) to consumer complaints and queries, in the CIC Regulation Act of 2005, the recommendations will go a long way in building a stronger and consumer-friendly credit reporting system in the country," said Mohan Jayaraman, chief operating officer, Experian Credit Information Co of India.

According to the Damodaran Committee report, there are a number of complaints by customers against wrong reporting by banks to the CICs, which have serious implications on the credit rating of the borrower. Customers want banks to ensure that any representation from customers in this matter is processed expeditiously. Customers have said that since inaccurate credit information reports vitiate loan sanctions, it would be appropriate for that aspect to be checked first and any adverse remark to be informed to the customer for necessary clarification upfront itself, so that errors can be corrected, the committee said.

Arun Thukral, managing director, Credit Information Bureau (India) (CIBIL), said, "Our system and date formats have been revised recently to be able to differentiate the amounts written off due to settlements. Banks now have the provision to report 'principal write-off' and 'total write-off' separately. Further, there is an additional field to report the 'settlement amount' as well. In addition to this the 'written off' and 'settled' fields also encapsulate various options or sub-fields for reporting, like restructured loans written-off, settled and part written-off settled. This provides an in-depth and clear picture of the status of the account on the CIR."

At present, CICs report data as submitted to them by member banks and financial institutions in their CIR, the interpretation of which depends on the policy and practices of the bank drawing such reports.

"The recommendations (of the Damodaran Committee) require banks to differentiate in their reporting to CICs between large settlements made at a huge loss to the banks and routine settlements made, which can then be indicated as such by the CICs in their CIR, resulting in fewer discretionary interpretations by individual banks," said Mr Jayaraman.

Currently, CIBIL provides an online dispute resolution service. Any customer who has issues with his or her CIR can fill the online dispute form on CIBIL's website. After analysing the form, CIBIL sends it to the relevant lender. After receiving confirmation from the lender, CIBIL updates its records and informs the customer as well, Mr Thukral explained.




5 years ago

This is a welcome development. There are a whole lot of individuals who are paying a steep price for 'settling'. However DSA's need to educate the customer before 'settlement' about its repercussions on the credit profile. We welcome CIBIL's recent developments as banks can differentiate between good and bad apples now.

The joy of losing: Is there an inner satisfaction that some people get by throwing good money away?

To understand why people know that they will lose their money and still persist, a number of factors come into play—economical, psychological and sociological

There has to be a reason behind why a larger number of otherwise intelligent and well-informed people are increasingly investing in many of these get-rich-quick schemes like Speak Asia and similar Ponzi/MLM (multi-level marketing) scams. In various conversations that we have had with people impacted by these scandals, after the whole scam had blown over, the attitude and explanation has always been the same—we knew it was too good to be true, we suspected that it would not really work out, but we still went ahead and invested in what we knew was going to be a losing proposition. Now they want the government to bail them out and put a stop to this.
There was no single category that did not fall for this sort of an otherwise openly visible disaster. Before the scam blew up, these very same people would extol the virtues of whatever scheme they were pushing, often organising events, meetings and such stuff. Once there was absolutely no hope, then and only then would they form groups to approach the authorities, and try to get their money back.
But if the government was able to somehow block all fiscal scams, people would still go to whichever rat-hole required and still invest in these rackets. And continue to get taken for a ride.

Las Vegas and Macau, for example, stand as vivid testimony to this simple fact. Behind all the brightly lit "legit" casinos and theme hotels, you will still find, in the back-lanes and dark corners, a new financial scam and hustle every day. And they are never short of takers.
As is well known, casinos will also use technology to render advances to people who need more cash to gamble with, after analysing their credibility and fiscal worth. This is how it works —if a gambler has exhausted all other options of raising cash to gamble, which means he had maxed his plastic, bank account and even pawned his wristwatch and jewellery, but he still wanted to gamble, then he heads for these "special" ATM-like machines, where he feeds in his personal data. Within minutes if not seconds, depending on a variety of parameters, the machine tells him how much he can get as an advance in cash, and at what premium.
Typically, the premium charged would be between 10% and 20%. But if the person had very low financial credibility, then the premium on his advance could be as high as 60% or 70%. In other words, for an advance of say $100, the gambler got $30 or $40, and the entities underwriting the payout would get the rest. With this money, the gambler was going to go back to whatever scam he was gambling on—and certainly lose, again.
Rich or poor, everybody loses when they go to a casino—it is just that the poorer people seemed to have the odds stacked against them in a higher ratio than the high rollers.
To try and explain this phenomenon, of people knowing that they would lose their money and still persisting, at one time all you needed was an above average understanding of economics, psychology and sociology.
1)  On the economics aspect, the brighter the person, the more the chances of being blindsided by an "I am smarter than others and can therefore beat the scamster at his own game" approach. This has often been proven with empirical evidence to support such a view - that knowledge of the real economics of a gamble or a scam will seldom, if ever, prevent people from having one more flutter. People from companies which worked in the technology of the casino business, for example, were totally banned from going anywhere near the gaming tables—because the casino operators knew that they would lose, and that in turn would endanger the casino itself.
2)  On the psychology aspect, there appears to be this bravado, which involves showing off your risk-taking capabilities to the rest of the world. In such cases, even people who lost their shirt and more, would return with wild stories of imaginary victories and winnings. This, in turn, would provoke and prod more people from that person's peer group to try to do the same, and in time, it becomes a vicious circle. In addition, in times of recession, it was seen that people went in for gambling for not just the long-shot winning chance, but also for the feel-good that it gave them—as long as they didn't tell people they had lost.
3) On the sociological aspect, many theories abound, the one I liked best which related to the Indian context goes like this—most Indians feel that they are being shafted by the "system" anyways, so a wild risk of the Speak Asia sort, especially if it is accompanied by the joys of being associated with a huge ad campaign and the resultant hype, is not exactly a bad idea. At Rs11,000 a pop, this makes sense at a level where a misadventure at an ATM of Rs10,000-Rs20,000 leaves the average middle class Indian with no recourse to any sort of review.
Another very 'Indian' aspect of such scams is the subtle pressure from people who are, shall we say, in a position to influence such an investment. Take a hypothetical scenario-if an official from a government department with whom you have to go through regular "dealings", suggests that you should buy a membership in a financial scheme being run and pushed by his dear spouse, then, would you refuse?
Scams like these have been taking place since time immemorial. The only difference now is that with the spread of the Internet and the ease with which funds can be remitted abroad, the scale is massive, and it really scales up rapidly at very low entry costs. Laws may or may not be tardy in this context—what law do you use when people give money on the basis of an Internet account with a password and some basic databases? But the fact remains that one country's loss is another country's gain. The country where the stolen money or goods land up has a totally different outlook-for them, it is like a jackpot, more investments into their country for doing nothing. Besides, the crime was committed elsewhere, so why would they be worried?
Which leaves, at the end of the day, only an attentive and awake media.
Some people have congratulated Moneylife for their role in busting the Speak Asia scam. Most people do not know the background. Of the legal notices, the veiled threats, the effort involved in notching issues up to the highest levels in government. And most of all, in seeking out people who were or are "panellists", and getting them to speak their minds out, as well as reveal some facts. And the knowledge that there will be yet another, bigger, worse scam waiting in the wings, again.
On IDs and issues related to privacy

Some bare data on the biometrics (read a document like a US visa) including facial recognition of the person, can give a very good idea of the other possessions he or she has, and most of all the data on other family members and friends who could be held responsible for loans taken by this person. These other people could be held responsible because they may have stood guarantee for something else, which could be used in this case, or they could simply be pressurised to part with their possessions and assets in settlement.
This is one of the bigger dangers some of us envisage with the UIDAI/Aadhaar number scheme. At the click of a keyboard, a person's full background is available to all sorts of entities, including such financial scamsters who will then prey on the aspects of a person's mind as listed above. And subsequently have access to all assets and belongings of not just that person who was tricked into taking a loan to lose the money, but also of his close family and friends.
Don't believe it?
I worked in this industry, for US companies, which had the technology to tag people or switch off by remote the engines of cars belonging to those who owed them money. They had the technology and wherewithal to use all sorts of methods to seize their assets as well as freeze their bank accounts and put a lien on whatever future earnings they may be capable of. These companies, in some case "respectable" listed companies, literally made a person go into debt, and then took everything and more away, and the technology for these was to quite some extent made and operated from India.
Do we see the same happening in India soon? Put it this way, in a linked article on the state of affairs at UIDAI/Aadhaar, this writer more than said the same thing—and mainly because behind the veil, and through the grapevine, he has ample reason to believe that he sees the same US companies now "supplying technology" to UIDAI/Aadhaar.


SC permits NMDC to operate 2 mines in Bellary

The Supreme Court also called for an environment impact assessment (EIA) to be undertaken by Indian Council of Forestry Research and Education (ICFRE) in collaboration various agencies as decided by ICFRE. The EIA report has to be submitted within three months

New Delhi: The Supreme Court on Friday allowed state enterprise NMDC to operate its two mines for production of iron ore in Karnataka's Bellary district, reports PTI.

"We are of the view that under the extraordinary circumstances, NMDC be allowed to operate these mines (two mines) to extend the production of iron ore to the tune of one million tonnes per month from Saturday onwards," a special forest bench headed by chief justice SH Kapadia said.

The bench kept private mine owners out of the mining activities and made it clear that no part of the iron ore extracted by the NMDC will be exported.

The bench also made it clear that the Karnataka government will levy royalty at a rate of 10% of the current market value of the iron ore.

It also directed that a macro-level environment impact assessment (EIA) to be undertaken by Indian Council of Forestry Research and Education (ICFRE) in collaboration with Wildlife Institute of India, Forest Survey of India and other such expert organisations in the field of forestry as decided by ICFRE in consultation with ministry of environment and forests. The EIA report has to be submitted within three months.

The bench also directed the Karnataka government to furnish within three months the reclamation and rehabilitation plan of Bellary district.

While passing the interim order, the court said, "It was observing the mandate of Article 21 of the Constitution for precautionary principle and internal generational equity."


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