RBI Introduces Credit Information Reporting Mechanism for Entities with Cancelled Licenses

In a recent move to safeguard borrowers’ credit histories, the Reserve Bank of India (RBI) issued a circular implementing a new credit information reporting mechanism following the cancellation of licenses or Certificates of Registration (CoR) for certain financial institutions. This initiative is set to ensure that borrowers maintain an accurate credit history, even when the institutions they are associated with lose their regulatory standing.

Under the Credit Information Companies (Regulation) Act, 2005 (CICRA), only entities officially classified as Credit Institutions (CIs) can submit credit information to Credit Information Companies (CICs). A CI’s license cancellation implies that it loses its status as a recognized credit institution, which previously resulted in borrowers’ repayment histories no longer being updated. This lack of reporting could negatively affect borrowers who continue meeting their financial obligations.

Key Aspects of the New Reporting Mechanism

To mitigate potential hardships for borrowers in such situations, the RBI mandates that institutions with canceled licenses or CoRs must still report credit information related to borrowers who were onboarded before the license cancellation. This reporting must continue until the loans are fully repaid or the institution is formally wound up.

The directive outlines that:

• Categorization as “Credit Institutions”: Institutions with cancelled licenses will be treated as CIs under CICRA specifically for credit reporting purposes. This status will be maintained until their outstanding loans are either cleared or the institution is dissolved.
• Obligation to Report Credit Information: These institutions are required to continue reporting credit data for borrowers onboarded before the cancellation, ensuring no disruptions in the recording of repayment histories.
• Waiver of CIC Fees: CICs are instructed not to charge annual or membership fees from entities whose licenses have been canceled, alleviating some financial pressure on these institutions.
• “License Cancelled” Tagging: CICs must clearly tag these entities as “License Cancelled Entities” in their credit information reports, using the RBI’s online database or official cancellation orders as references for the tagging.

The new mechanism is expected to be fully operational within six months, offering a reprieve to borrowers whose repayment records might otherwise have been overlooked. The RBI has confirmed that this policy applies retroactively, benefiting borrowers linked to institutions that had their licenses cancelled prior to this directive.

This regulatory update applies to all commercial banks (excluding Payments Banks), Urban and Rural Cooperative Banks, Non-Banking Financial Companies (NBFCs), Asset Reconstruction Companies, and all CICs operating in India.

By setting up this mechanism, the RBI aims to support borrowers in retaining their creditworthiness and ensure that disruptions in financial institutions’ regulatory status do not negatively impact responsible customers.