Damodaran Committee: Need to differentiate between settlements in credit reports
Moneylife Digital Team 05 August 2011

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.

1 decade 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.
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