In his recent speech at RBI's Annual Statistics Day Conference, RBI Deputy Governor Viral Acharya called for the creation of a Public Credit Registry (PCR). A PCR is a comprehensive database of all borrowings in the country. The Deputy Governor suggested that submission of information to this registry should be compulsory, and that it should be managed by the RBI. He added that the RBI intended to establish a task force for setting up the PCR.
In this article, we argue that there is no market failure that justifies the establishment of a PCR, and that there is no evidence that a PCR is required for an efficient credit market. Given that India has a surfeit of credit information entities, the creation of a new PCR in the RBI is unlikely to help.
The market failure test
The public economics approach is that markets work reasonably well in most situations. State intervention should be avoided if possible. Public choice theory suggests that a bureaucracy will try to expand its own budget and functions. A proposal by an agency that tries to enlarge itself should be treated with scepticism.
In this light, does India require a PCR run by the RBI? World Bank data shows that most countries around the world do not have PCRs. Countries such as the US, UK, Canada, Australia, New Zealand, Netherlands, Sweden, Norway, Japan, South Korea, all have highly developed credit markets without having PCRs. In these countries, private sector credit bureaus fulfil this function. The international examples the Deputy Governor cited in his speech (Thomson Reuters Dealstreet, and Dun & Bradstreet) are both private entities. The major Consumer Reporting Agencies in the US, as well as the Credit Reference Agencies in the UK, are all private entities functioning in competitive markets.
These examples suggest that the credit information industry need not suffer from market failures, as long as appropriate statutory frameworks are in place to deal with issues such as the privacy, safety, and sharing of information. The absence of PCRs in most well-functioning credit markets indicate that PCRs are not required for competitive credit markets.
Too much of a good thing
India already has a large number of entities involved in providing credit information. There are four Credit Information Companies (CICs), all regulated by the RBI. It is mandatory for institutional lenders to provide credit information to these companies. The RBI has extensive powers over CICs: even their membership fees and annual fees are decided by the RBI. Apart from this, the RBI has previously created the Central Repository of Information on Large Credits (CRILC). The Central Registry of Securitisation, Asset Reconstruction, and Security Interest (CERSAI) was created by the government to record the creation of security interests over property. The MCA21 database of the Ministry of Corporate Affairs is used to record charges on the assets of companies.
The Insolvency and Bankruptcy Code (IBC) has introduced yet another type of entity to this space: Information Utilities (IUs). The design of IUs has been thought through by the Bankruptcy Law Reforms Committee and by the Working Group on Information Utilities. The Insolvency and Bankruptcy Board of India (IBBI) has recently issued regulations that enable the registration and operation of IUs, though no IUs have started operations as of yet.
To justify a PCR, the RBI needs to explain not just what market failures it seeks to solve, but also why all these other entities were (or, in the case of IUs, will be) ineffective in solving those market failures, and why PCRs will succeed.
To make a case for having a PCR in India, the RBI needs to articulate what market failures the PCR will solve. We have seen above that market failures are not necessarily a feature of the credit information industry, and that PCRs are not necessary to achieve competitive credit markets.
In India, a number of entities exist that are related to providing credit information. They include four CICs, CRILC, CERSAI, other databases in the RBI and the Ministry of Corporate Affairs, and the upcoming IUs. Given the existence of all these entities, the RBI also needs to argue why the existing entities are not sufficient, and why yet another government agency needs to be set up. In the absence of such articulation, it is not clear that further state intervention in the form of PCRs is warranted.
World Bank, Credit Registry.
Shah, Ajay, Solving market failures through information interventions, Ajay Shah's blog, April 2015.
Government of India, The Report of the Bankruptcy Law Reforms Committee, chaired by Dr T K Vishwanathan, 4 November 2015.
Government of India, The Insolvency and Bankruptcy Code, 2016.
Ministry of Corporate Affairs, The Report Working Group on Information Utilities, chaired by K V R Murty, 11 January 2017.
Insolvency and Bankruptcy Board of India, Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017.
Prasanth Regy is a researcher at the National Institute of Public Finance and Policy, New Delhi.
The author would like to thank Anirudh Burman, Pratik Datta, and an anonymous referee, for helpful comments.