Public Credit Registry (PCR)

Public Credit Registry (PCR)

Public Credit Registry

  • The PCR will be an extensive database of credit information for India that is accessible to all stakeholders. The idea is to capture all relevant information in one large database on the borrower and, in particular, the borrower’s entire set of borrowing contracts and outcomes.

Management of PCR

  • Generally, a PCR is managed by a public authority like the central bank or the banking supervisor, and reporting of loan details to the PCR by lenders and/or borrowers is mandated by law.
  • The contractual terms and outcomes covered and the threshold above which the contracts are to be reported vary in different jurisdictions, but the idea is to capture all relevant information in one large database on the borrower, in particular, the borrower’s entire set of borrowing contracts and outcomes.

Need for a PCR

  • A central repository, which, for instance, captures and certifies the details of collaterals, can enable the writing of contracts that prevent over-pledging of collateral by a borrower.
  • In absence of the repository, the lender may not trust its first right on the collateral and either charge a high cost on the loan or ask for more collateral than necessary to prevent being diluted by other lenders.
  • This leads to, what in economics is termed as, pecuniary externality – in this case, a spillover of one loan contract onto outcomes and terms of other loan contracts.
  • Furthermore, in the absence of a public credit registry, the ‘good’ borrowers are disadvantaged in not being able to distinguish themselves from the rest in opaque credit markets; they could potentially be subjected to a rent being extracted from their existing lenders who enjoy an information monopoly over them.
  • The lenders may also end up picking up fresh clients who have a history of delinquency that is unknown to all lenders and this way face greater overall credit risk.

Benefits of having a PCR

  • A PCR can potentially help banks in credit assessment and pricing of credit as well as in making risk-based, dynamic and counter-cyclical provisioning.
  • The PCR can also help the RBI in understanding if transmission of monetary policy is working, and if not, where are the bottlenecks.
  • Further, it can help supervisors, regulators and banks in early intervention and effective restructuring of stressed bank credits.
  • A PCR will also help banks and regulators as credit information is a ‘public good’ and its utility are to the credit market at large and to society in general.
  • Credit information is now available across multiple systems in bits and pieces and not in one window.
  • Data on borrowings from banks, non-banking financial companies, corporate bonds or debentures from the market, external commercial borrowings (ECBs), foreign currency convertible bonds (FCCBs), masala bonds, and inter-corporate borrowings are not available in one data repository.
  • PCR will help capture all relevant information about a borrower, across different borrowing products in one place.
  • It can flag early warnings on asset quality by tracking performance on other credits.

Location: Thiruvananthapuram, Kerala, India

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