National financial information repository: One more or one for all?

– Lovish Jain, Executive | lovish@vinodkothari.com

Some days ago, Mr. Vinod Kothari had commented on a LinkedIn post :

“Do we realise how many places does a lender (NBFC, Bank) register information about a loan? There are 4 credit information companies (such as CIBIL) where the credit data, including performance history, is uploaded. If the exposure is Rs 5 crores or above, in the aggregate over the banking system, information goes on CRILC too.

RBI has recently written to NBFCs reminding them of the obligation to register details with NeSL, an information utility under IBC, irrespective of whether the provisions of Code apply (for example in case of individuals), or whether the lender in question is at all contemplating resorting to IBC as a remedy (for example, consumer loans).

If the loan is a secured loan, the details need to be filed with CERSAI. If the secured loan borrower is a company, details need to be filed with RoC too. If the security interest is on immovable property, one needs to file particulars with land registry. If the security interest is on motor vehicles, the hypothecation is registered with Vahan portal too.

In case I haven’t missed any, we are talking about at least 8 places to go for registering very same particulars of a financial transaction.

Could the giving of a loan, performance of loan, or collateral for a loan be so different that they cannot be registered at a single place? After all, any registration of particulars if for someone to search the data – are we saying users will search 8 different places for the very same basic data?

This is awfully wrong, and unfortunately, the regulators casually keep asking financial entities to keep piling data. Leave aside the cost of filing itself, there is a major burden on IT systems and manpower costs. And with what benefit?” 

The post succinctly encapsulates the dilemma lenders face owing to fragmented registration requirements, which come from multiple laws: IBC, SARFAESI, RBI directions, etc.

Present regime of multiple registrations:

As pointed out earlier, the present framework for registration of financial information requires multiple registrations with multiple bodies, who do not handshake with each other. A lender has to register the particulars of a loan at multiple platforms which again becomes a cumbersome process for the user of such information to resort to multiple sources of information which may provide him with the information related to a single asset or person. To understand, following are the platforms where a lender may have to register the particulars of his lending:[1]

Sr. no	Platform for registration of financial information	Governing authority	Applicability
1.	Credit Information Company (like CIBIL)	RBI vide its notification	Credit data of lender/borrowers and performance history
2.	Central Repository of Information on Large Credits (CRILC)	RBI vide its notification	Aggregate loan exposure ≥ Rs. 5 cr.
3.	Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI)	SARFAESI Act, 2002	Secured loan
4.	Registrar of Companies (RoC) by way of registering charges through e-Forms	Companies Act, 2013	Security creation on the asset of the company
5.	Land registry records	State laws, Registration Act, 1908	Security interest is created on an immovable property
6.	Vahan portal	Ministry of Road Transport & Highways	Security interest is created on a vehicle
7.	NeSL (information utility under IBC)	Insolvency and Bankruptcy Code, 2016	Financial creditor and operational creditor under IBC shall furnish information w.r.t. to all debts

Proposal for setting-up of a central repository of financial information

The Union Budget for FY24 proposes setting up of a National Financial Information Repository. The relevant excerpt from the budget speech reads as, “A national financial information registry will be set up to serve as the central repository of financial and ancillary information. This will facilitate efficient flow of credit, promote financial inclusion, and foster financial stability. A new legislative framework will govern this credit public infrastructure, and it will be designed in consultation with the RBI.”

Possibly to avoid this overlapping of registering the same information, a proposal for setting-up a central repository for financial and ancillary information has been made. However, it is unclear yet, whether the proposal of the new repository entails another place where the credit information has to be registered or this would serve as a centralized agency for storing all the financial information at one place, eliminating other platforms. Hopefully, the idea is to centralise and if it is so, it would eliminate the need of multiple registries, and thus, all the costs and confusion arising out of such multiplicity. 

Legislative framework for governance

As announced by the Finance Minister in her speech, “a new legislative framework will govern this credit public infrastructure, and it will be designed in consultation with the RBI”. At present, there are multiple statutes, governing different information utilities in India (as also detailed in the above table). Expectations are that RBI may soon come up with a consultation paper or draft framework, seeking views and suggestions of the stakeholders.   

Information repository is a public good, not a private profit center

It is important to note that storing and disseminating the information stored about financial transactions should be viewed as a  public good, and not as a private enterprise. The present information repositories are shareholder-owned entities who are driven by their own profit motives. Instead, the idea of an entity backed by statute, and therefore, potentially without majority ownership of a particular stakeholder, may better serve the needs of a centralised repository.

Benefits of having a central information repository 

The operational hassle in the current system is only increasing burden on IT infrastructure and costing higher manpower. To make the process systematic and simple, it is required to have a centralized reporting system wherein all the aspects of a financial transaction may be reported and can be accessed by its user. 

Currently, reference to “defaults” as per records of the repository has been incorporated in the insolvency processes, at least in case of financial creditors. Registration with CERSAI is also necessary for gaining priority in terms of section 26D of the SARFAESI Act. A centralised registry system, on lines of article 9 of the Uniform Commercial Code in the PSA has been a long felt need. It is heartening to see that the Budget addresses this crucial area. An unresolved question is – what happens to the existing repositories? Possibly, there would be some sort of integration and a transition period – one would only know once there is a regulatory initiative on the same.

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[1]  See our detailed write-ups on this topic here: Registration of security interest, CERSAI beyond SARFAESI, Fragmented framework for perfection of security interest