New RBI norms make it tough to get multiple personal loans

MUMBAI: Retail borrowers will find it difficult to over-leverage by obtaining multiple personal loans in the new year. A new norm, that requires lenders to update credit bureau records within 15 days instead of one month earlier, is kicking in. With records being updated every two weeks, fewer borrowers will qualify for multiple loans.

The directive to lenders and credit bureaus to reduce the reporting interval to 15 days was issued in August, with RBI giving them until Jan 1 to get their systems in place. RBI had said that this would enable lenders to make better risk assessments of borrowers.

"Equated monthly instalments (EMIs) are scheduled on various dates across the month. A once-a-month reporting cycle could delay reflecting defaults or payments for up to 40 days, resulting in outdated data for credit evaluations. Switching to a 15-day reporting cycle would significantly reduce these delays. More frequent updates allow lenders to capture defaults or payments more accurately and closer to real-time," Sachin Seth, chairman at credit information company CRIF High Mark, said.

In a recent interview with TOI, SBI chairman C S Setty had said that when new-to-credit borrowers obtain a loan and become part of the credit system, the new access sometimes ends up with them taking money from multiple lenders - more than what they can service. SBI had recommended more frequent updating of records to enable creditors to have a better view of borrower behaviour. "This is likely to tone down multiple borrowings by the same individual," he said.

A borrower with multiple loans on different due dates would have their financial activity reflected in the system within two weeks, reducing the blind period where critical data might be missing. This ensures lenders have a clearer, more current view of a borrower's credit behaviour," Seth said.

Lenders say that frequent data updates also prevent practices like "evergreening," where borrowers use new loans to cover old defaults without the system reflecting the risk. By cutting the reporting cycle in half, credit bureaus and lenders gain sharper and more reliable data that improves decision-making and fosters a healthier lending ecosystem.

Source :Times Of India, 03rd January, Mumbai