In a move that has sparked concern within the cooperative credit structure, the Reserve Bank of India (RBI) has declined the request of State Cooperative Agriculture and Rural Development Banks (SCARDBs) to be recognized as Credit Institutions under the Credit Information Companies (Regulation) Act, 2005 (CICRA).
The apex body of Agriculture and Rural Development Banks (ARDBs)- Nafcard has urged the central bank to revisit its decision, asserting that inclusion of SCARDBs in Credit Information Companies (CICs) would strengthen the credit information ecosystem and lead to more accurate credit scores.
The Long-Term Cooperative Credit Structure (LTCCS), comprising SCARDBs and Primary Cooperative Agriculture and Rural Development Banks (PCARDBs), is among the oldest credit institutions in India.
Despite their significant footprint, catering to over one crore households, SCARDBs are yet to be granted recognition as Credit Institutions under the CICRA, thereby preventing them from becoming members of CICs.
CICs play a crucial role in the lending ecosystem by collecting, maintaining, and analyzing credit data of individuals and businesses. The credit scores they assign, ranging from 300 to 900, are critical in determining loan eligibility and terms, with scores above 750 generally considered favourable.
However, in the current setup, credit transactions from SCARDBs are not captured in the CIC databases, creating a blind spot in the credit history of borrowers.
This regulatory exclusion means that even wilful defaulters of SCARDBs may maintain high credit scores and secure loans from other financial institutions under favourable terms. “This is not a minor concern, especially when institutions with over crore member households are excluded from the credit reporting framework,” said a senior official of the federation.
A recent study titled ‘Reforms, Restructuring and Innovations in ARDBs’, commissioned by the Ministry of Cooperation and undertaken by NABARD Consultancy Services (NABCONS), recommended allowing SCARDBs to become CIC members. According to the study, such a move would not only enhance the reliability of credit scores but also bolster recovery efforts within the ARDB system.
However, in its response to the federation’s request, the RBI stated, “It is not considered feasible to allow SCARDBs to become CICs under the IC Regulation Act at this point of time.” The central bank has not elaborated on the reasons behind its decision.
The federation argues that since SCARDBs are purely credit institutions engaged in long-term agricultural financing, their exclusion from CIC membership lacks justification. “When lending agencies increasingly rely on credit scores to manage credit risk, it is imperative that all lending institutions, including SCARDBs, are included in the CIC framework,” the federation noted in a statement.
It has once again appealed to the RBI to reconsider its stance in the interest of a robust and inclusive credit information system.
