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RBI &SEBI jointly working on a framework for accurate exchange of borrower data between banks and CRAs

India’s central Banking Institution, the Reserve Bank of India (RBI) and the regulator for the securities market in India, SEBI (Securities and Exchange Board of India ) are jointly working on a framework that will freely enable exchange of borrower information  between banks and credit rating agencies (CRAs) in more accurate manner.RBI &SEBI

Key points:
i. Aim : The joint framework aimed at bridging the gap between the default rates divulged by rating agencies differed from the report computed by the  RBI’s Central Repository of Information on Large Credits (CRILC), a borrower-level database focusing on systemically important credit exposures.
ii. Background: A working group of officials from financial sector regulators including members of the Insurance Regulatory and Development Authority of India (IRDAI) and Pension Fund Regulatory and Development Authority(PFRDA) have found out these  divergence in data in meeting held on September 9, 2019. An internal analysis undertaken by RBI also notified theses differences at the recent meeting.
iii. Reason for differences: This divergence is due to the banks’ reluctance to exchange on any data about delays in payment of principal/interest to CRAs. Also, the CRAs do not have access to CRILC. Banks usually report to CRILC credit data set on all their borrowed customers having total fund based and non-fund based exposure of ₹5 crore & above.
iv. Mandate: RBI will also advise the banks to update the borrower data with CIC (credit information companies) regularly and to maintain the quality of the information.
v. On September 16, 2019, RBI has directed the  banks and non-banking finance companies (NBFCs) to stop sharing the  consumer’s credit data held by credit information companies (CICs) with analytics firms , IT (Information Technology) companies, institutional agents and unregulated parties.

About CRAs:
It is a company that assigns credit ratings, which rate a debtor’s ability to pay back debt by making timely principal and interest payments and the likelihood of default.

About RBI:
♦ Formation: 1 April 1935
♦ Headquarters: Mumbai
♦ Governor: Shaktikanta Das

About SEBI:
♦ Founded
: 12 April 1992
♦ Headquarters: Mumbai
♦ Chairperson: Ajay Tyagi