The Watchdog Is Active Now

A silent revolution is taking place in the lives of Indians and most people are still unaware of it. Their bill payment habits are being tracked and the entire results are already available online at the click of button. The organization that performs this tracking is called a credit bureau. So what are credit bureaus? How do they get information on customer's bill payment habits? What do they do with this financial information?

Credit bureaus are independent agencies which collect the bill payment records of all the customers of various lending organizations like banks, credit card companies, housing finance companies as well as consumers of different telecommunication companies (or consumers of any services which involve credit and/or periodic payments) and even keep track of any bankruptcy proceedings or default ordered by the courts.

All these records are stored in a common database and this information is availed by the lenders before approving personal loans. Normally, there is an overriding common identifier (like the social security number in the US) but in India, the common identifier is still a permutation and combination of various numbers and data such as income tax returns, PAN card No., passport no., Voter's ID No., name and date of birth of the person, phone number, etc.

Whenever any authorized organization (currently only banks are allowed to access these records from the credit bureau) asks for the records of a specific individual the possible matched records are provided, and the availability of personal loans depend heavily on the credit status of the borrower.

This information supplied by the credit bureau is very valuable for the bank, as the bank is able to obtain the borrower's existing debt and repayment history at the click of a button. It is also good for the person (if he is among the 90% plus population who pay their bills on time) since he will be able to get a quick decision on his personal loan request and get a good interest rate as well.

Currently, the only functioning credit bureau (Credit Information Bureau of India Limited or CIBIL) is being run as a joint venture between the banks without any statutory backing from the Government of India. The Parliament has already passed a law in 2005 (called Credit Information Companies (Regulation) Act, 2005) and the rules required to make the Act effective are currently in the process of being finalized by RBI by the end of 2008.

Author Bio: Addi Vardhaman works as a business writer for Paisawaisa. For more tips on finance community for you and your family, find loans against property, personal loans in India, finance community.