New-age lending fintechs lead, while banks lag in data submission to credit bureaus 

Fintechs and even banks with legacy issues are offering loans on the fly, but the credit bureau scores of a borrower or consumer are based on data that is 30 days old, and in some cases, even more than a month old.

It's a classic case of financial infrastructure not keeping pace with the speed of innovation or the speed of lending today. This kind of mismatch creates a weak foundation for the financial system, as any default in a particular loan segment will have a cascading impact.

The Reserve Bank of India (RBI) wants banks and financial institutions to submit data to credit bureaus at a higher frequency than what they are doing today. Traditionally, data submission was at 30, 60, and more than 90 days. Things have certainly improved in the past, but there is still a gap, which opens up the risk for the institutions.

At a Digital Lenders Association of India (DLAC) Conclave in Mumbai, Manish Jain, Country Managing Director at Experian India, said, "I can only ingest as fast as I receive the data. I know the fintech industry reports to credit bureaus every seven days. So, that's why your expectation is to ingest faster," responded Jain of Experian India while highlighting the fact that the data from banks comes with a lag of 30 days and more.

Nearly a decade ago, the RBI directed all banks and non-banking financial companies (NBFCs) to become members of credit information companies (CICs) or the credit bureaus—TransUnion CIBIL, Experian, Equifax, and CRIF High Mark—and share all outstanding credit data with defaults, if any.

The credit bureaus maintain data on borrowings and payment details on a monthly basis. They collect data from banks and financial institutions and provide credit scores to banks, individuals, or any other entity that wants it. This helps banks with a better understanding of a borrower's liabilities before sanctioning any new loan. 

The RBI also wants banks to update credit information on a monthly basis or at shorter intervals.

As a result, the credit bureaus have played an important role in the credit behavior of individuals for retail lending to flourish.

"We all make decisions in a matter of minutes or seconds. The data that we receive or rely on from the bureaus is at least 30 days old, 60 days old, or 90 days old. So, while we think we are fast, let's say, in the month of February, we are actually underwriting based on the Bureau's data, which may be from September, August, or December. September is a real problem," said Gaurav Hinduja, Co-founder, and Managing Director at Axio, who also moderated the session.

However, the fintech industry, which is submitting data in a week’s time, is also small. They also don’t have any legacy issues. Today, the fintech industry contributes only 2% of the dollar value lending in the country. This means the participation from bigger instutitions  is must to make a difference. 

As an industry, the credit bureaus have been taking up the matter with the authorities. They have a technical working group. All four credit bureaus that are part of the group and are engaging not just with the regulator but also with the ministry, especially the Department of Financial Services.

"If a bank says I don't have infrastructure to provide you with data more frequently than 30 days or 90 days, how can you measure me on the speed of freshness? You cannot," says Jain who was asked about the need for faster speed of credit bureaus to collect, process, and generate reports for the industry.

"Two large banks have moved to daily submission," adds Jain. 

Clearly, there is a long way to go for the banks and institutions to submit daily data and also for the credit bureaus to publish daily scoring of borrowers.