To help banks avert the bad loan crisis again and as a step to it to enable banks' distinguish good and bank borrowers, the Reserve Bank of India, the apex banking body has made a call to legalise and enact PCR or public credit registry. So what this PCR all entails? Here's a brief narration on the new approach:
PCR in its definitive form is a huge database on credit information that has accessibility to all of the shareholders, allowing separating bad and good credit.
As per the RBI's deputy governor, the framework in the rest of the world is backed by a special PCR Act which though can oversee all the governance related issues such as data acquisition as well as its distribution via rights to access.
At first, this PCR is being set up within the infrastructure of the RBI. And the process has commenced with effect from April this year under the Chairmanship of YM Deosthalee.
It is being suggested that if implemented the system should be able to provide short term loans to small vendors as even paan walas or tea vendors at competitive rates. So, in a way, as per the deputy governor language, like in the FMCG space, the banking services shall be able to penetrate larger masses as per the underlying objective of financial inclusion and render competitive offerings.
In a speech, the deputy governor of RBI Viral Acharya was quoted as saying, "It is desirable to have a special comprehensive legislation, overriding the prohibitions contained in all other legislations on sharing of information required for the PCR. Otherwise, all such legislations will have to be amended separately, providing an exemption for sharing of information with PCR".
Further, at local front where India commands a low credit to GDP ratio, improving the affordability as well as access to credit will go a long way in not only improving the living of a common man but will spearhead the integral banking industry.
How PCR will work?
As per the statement made by Viral Acharya, the information of a borrower will be aggregated via the credit information repository and from the various other significant departments and networks such as GSTN, MCA etc. Further, the information available on these platforms is chiefly verifiable as well as provides access to data to all the significant stakeholders in the Indian financial system.
Also, other steps such as the mandatory eKYC feature as well as UPI is also a creating a sea of data which is though a way of improving credit worthiness. Also, given these channels at hand and the advantage the PCR database is foreseen to lend, it is viewed that the cost of on-boarding a given borrower at a particular in time will go down substantially.
So, for the banking industry which is still to come out of the crisis in terms of huge NPAs in still two to three quarters, the database will augur well. This is as because the institutions will now be able to lend services and credit to participants at a cheaper and competitive rate even for a small period of tenure and precisely at a much lesser cost due to the digital intervention.