How RBI's new 15-day credit reporting rule impacts loan borrowers
What's the story
In a major overhaul of its credit reporting rules, the Reserve Bank of India (RBI) has made it mandatory for lenders to update credit bureau records every 15 days.
The new rule comes as a departure from the previous monthly cycle and aims to make credit scores more accurate and timely reflect the financial activities of borrowers.
Borrower benefits
Impact on borrowers and lending behavior
The new 15-day cycle will mean more frequent updates to borrowers' credit scores.
Meaning, positive actions like settling a loan or making timely repayments, will be reflected within this period.
The change is likely to help borrowers secure new loans or negotiate better interest rates faster than before.
Lender advantages
Enhanced monitoring and financial discipline
The revised rule also allows lenders to keep a closer watch on borrowing behavior.
This is especially applicable for first-time borrowers who are usually juggling multiple loan applications.
The new regulation makes it difficult for such people to default without being caught, encouraging financial discipline and reducing the risk of over-borrowing.
Debt management
New rule targets unsustainable debt cycles
The RBI's revised regulation also seeks to end 'evergreening,' a practice where borrowers take new loans to repay old ones, resulting in unsustainable debt cycles.
With more frequent updates, lenders can now catch such practices sooner.
This minimizes financial risks for both parties involved and goes a long way in creating a healthier lending environment in India.
Assessment accuracy
Addressing delays and improving financial assessment
Earlier, monthly updates often led to delays in reflecting repayment behavior, sometimes even adversely affecting borrowers' creditworthiness.
This could result in rejection of new loans or less favorable terms.
But with the 15-day cycle, a more accurate and fair evaluation of financial health can be ensured, benefiting both lenders and borrowers.