CIBIL, Fair Practices Code for Debt Collection, BCSB

For banking professionals, the JAIIB exam is critical; passing it will open new doors and prospects. Take a look at this blog to learn more about the Fair Practices Code for Debt Collection and the work of CIBIL, which are important topics in the exam.

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Credit Information Bureau (India) Limited (CIBIL)

CIBIL is an information repository that collects data from all Indian banks and lending institutions. Over 17 crore consumer records and over 65 lacs company records have been provided to CIBIL by our over 500 members.

The Credit Information Companies (Regulation) Act, 2005, as well as several Reserve Bank of India Rules and Regulations, have given CIBIL (Credit Information Bureau (India) Ltd the authority to collect data from various types of credit grantors (i.e. lenders), and then share it with the rest of the group. Banks can now disclose data to CIBIL without gaining borrower approval because of new regulations. CIBIL has been able to trace the repayment history of bank clients’ loans, credit cards, and other banking finances as a result of this.

The goal of CIBIL is to meet the need for comprehensive credit information among credit-providing institutions by collecting, compiling, and disseminating credit information about commercial and consumer borrowers to a closed user group of Members. CIBIL’s services are used by banks, financial institutions, non-banking financial companies, housing finance companies, and credit card companies. The principle of reciprocity governs data exchange, which implies that only members who have supplied all of their credit data are eligible to receive Credit Information Reports from CIBIL. The connection between CIBIL and its members is one of mutual reliance.

Functions of CIBIL

Credit bureaus are organizations that work with a variety of lenders and creditors to assist them in making loan decisions. Lending institutions, such as banks and credit unions have a business plan that involves taking money from depositors and paying them a set interest rate.

CIBIL offers three products: a credit score, an individual credit report, and a company credit report:

Credit Information

CIBIL obtains credit information from a variety of sources, including other creditors, debtors, debt collection agencies, credit card firms, and other offices with public credit records.

CIBIL primarily focuses on accounts where an individual owes money to another organization. They also collect information on payment information for bills, payments, and rent. The information will subsequently be compiled into a thorough credit report.

Credit Report

A credit report is a detailed description of an individual’s credit history. Personal information, such as residences, Social Security numbers, and employment history, is usually included in the report. The report will next break down the summary of in-good-standing and past-due bank and credit card accounts. It will also include account information, such as balances, limits, and dates of opening.

Credit Scores

A credit score is a three-digit numerical value that measures an individual’s creditworthiness.

Creditworthiness is measured on a scale of 300 to 900, with 900 being the greatest and 300 being the lowest. The credit history of an individual is used to calculate this score. Banks and most financial organizations prefer to give loans to those with credit scores of 750 or above.

Individuals with high credit scores are less likely to miss loan payments.

Fair Practices Code for Debt Collection

The banks’ debt collection fair practices code is based on treating clients with dignity and respect. The codes are outlined in line with the guidance of the Government of India’s Taskforce on Lenders’ Liability Laws. Bank security repossession practices were designed to recoup debts in the event of default, not to deprive property owners arbitrarily.

Commercial banks in India have developed debt recovery codes that comply with RBI regulation or monitoring instructions, the IBA Model Policy, and the BCSBI Fair Practice Codes and Charters.

Loan Applications and their Processing

The loan application form for priority sector loans and advances of up to Rs. 2 lakhs should be thorough. It should include information about any processing fees or charges that must be paid. The sum of such costs is refundable if the application is not accepted. The borrower can thus do a relevant comparison with that of other institutions and make an informed selection.
All loan applications must be acknowledged by banks and other financial institutions. The time frame for processing loan applications up to Rs 2 lakhs should also be specified in the acknowledgement of such applications.
Banks and financial organizations should examine loan applications in a fair amount of time. If more information or documents are needed, they should notify the borrowers very away.
Small borrowers requesting loans of up to Rs 2 lakhs should be informed in writing of the principal reason(s) that, in the judgement of the bank, after careful analysis, led to the rejection of their loan applications within the time limit.

Banking Codes and Standards Board of India (BCSBI)

The Banking Codes and Standards Board of India (BCSB) was established in February 2006 to develop codes and standards to ensure that banks treat consumers fairly.

Banks that are members of the BCSBI adopt the Codes freely for implementation.

Functions

To act as an independent and autonomous watchdog, monitoring and ensuring compliance with the Codes and Standards.
To offer fair treatment to their consumers, banks must plan, evolve, prepare, establish, promote, and publish voluntary, comprehensive Codes and Standards.
Conduct and research existing Codes and Standards in use around the world.
To enter into covenants with banks for the compliance of codes and standards, as well as to teach bank workers on the Codes.
To assist persons who have been impacted by natural disasters.

Monitoring the Code’s Implementation

To determine whether there is a system-wide flaw, examine customer complaints and orders/awards made by Banking Ombudsmen/Appellate Authority.
Organizes an annual conference with the member banks’ Principal Code Compliance Officers to discuss implementation difficulties.
Visits branches to find out how the Codes are being implemented on the ground.
Obtains an Annual Statement of Compliance from member banks (ASC)

Conclusion

We have summarised the role of CIBIL, the reason for creating the Fair Practices Code for Debt Collection, and the functions of the BCSB in this post, which is an important topic in the JAIIB exam. To pass the exam with flying colours, enroll in Oliveboard tutorials, where you will receive a variety of benefits such as study resources, important notes, teacher-led question-answer sessions, and other useful tips.

FAQ’s

What exactly is a credit report?

A Credit Information Report (CIR) is a verifiable record of a borrower’s credit payment history created from data provided by several credit grantors. Its goal is to assist credit grantors in making rapid and impartial loan choices.

What types of credit reports does CIBIL offer?

CIBIL is a hybrid credit bureau that serves both businesses and consumers. Individuals are covered by the Consumer Credit Bureau, whereas partnership firms, proprietary concerns, private and public limited companies, and other non-individuals are covered by the Company Credit Bureau.

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