E-mail this
Print Article

by Kshitij Dua & Karn Gupta*

Cite as : (2006) PL April 13

1. Introduction

The past

The banking sector in India underwent an unprecedented transformation in the 1990s with the emergence of a large number of private as well as foreign multinational banks. As a result of the economic reforms, the number of banks increased rapidly. With the emergence of a large number of banks in the Indian economic set up, banking activities increased manifold and affected a large number of areas of operation of banks, particularly in the field of bank lending. Banks used to and still operate on the pattern of extending credit on the basis of security given by its customers associated with the bank. The facility of extending credit is recognition of the changing times in which banks have to operate in a changing and ever evolving economic scenario. Growing needs coupled with the realisation of higher rate of investments is a compulsion giving birth to bank credit.1

Requirement of credit agencies

In earlier times there were no credit agencies maintaining database on the existing customers and a need was felt for correcting the existing state of affairs. In the absence of adequate and structured credit information for the banks, there was always danger of a party obtaining financial accommodation from a large number of banks to an extent not warranted by his/her means or paying capacity. In such a scenario, the spectre of bad debts which have to be written off while preparing the financial statements (i.e. the balance sheet) became an added burden on the existing financial resources of banks. Therefore in 1962, a Credit Information Division was established in Reserve Bank of India. Its primary function was collection of information from banks and other financial institutions regarding data relating to the prescribed limits sanctioned by RBI.2 The Saraiya Commission also suggested the formation of credit information bureaus on the lines of those prevalent in the US and the UK.3 The credit information bureaus in the US and the UK used to provide information on the history of the business concern, ownership and changes in the business concern, digest of statements of assets and liabilities, results of investigations in the trade, fire records, etc.

Collection of information: Early steps

Along with the formation of the Credit Information Division in RBI, the Reserve Bank of India Act was amended in the year 1962 incorporating amendments to the effect that RBI was given powers to collect information in regard to credit facilities granted by individual banks and notified financial institutions to their constituents and to supply to these banks and institutions on application the relative information in a consolidated form.4 Apart from all the above steps, banks constantly keep a check on the customers by obtaining information from all the other sources pertaining to their customers in any form.5

Credit Information Companies (Regulation) Act, 2005: Why

The formation of the Act is a step in the right direction and is in line with the earlier efforts of RBI in collection of information. The Credit Information Companies (Regulation) Act, 2005 allows the creation of credit information agencies or companies which will enable banks to readily access the full credit history of the borrower.

2. Credit information collection and agencies: A few clarifications

Before embarking upon the process of determining the relevance of Credit Information Companies Regulation Act, 2005, it is important to understand the relevance of credit information and the purpose of credit information bureaus and credit information companies formed thereafter. A few preliminary clarifications in this regard would help us in understanding better, the relevance and purpose of a credit information company:

Credit information company: What is it

A credit information bureau or a credit information company is an institution set up by lenders i.e. banks and credit card companies which maintain records of credit histories on individuals and business entities. Its membership may comprise of a banking company or companies, non-banking financial companies (NBFCs), public financial institutions (FIs), State financial corporations, housing finance companies (HFCs), companies engaged in business of credit cards and companies dealing with distribution of credit.

Credit information company: Benefits for the borrower

A credit information company indulges in the activity of credit scoring which may be beneficial for the consumer on the one hand and for the banks and financial institutions on the other. This means that on the basis of the individual credit information report of each borrower, a score is given to the borrower which indicates his/her reputation in the credit market. A good score means lower interest rates and other preferential treatment at the time of granting of credit. The establishment of a credit information company is a step towards evolving a credit-rating model that will reward borrowers with a good credit history and penalise those with a poor record.6

The information purpose: What is it

The lender before extending the loan checks the credit profile of the borrower and the yardstick before him is the information on the borrower in the form of the credit information report to find out the creditworthiness of the borrower.

The information: What kind

The nature of the information includes full credit history i.e. previous borrowings, default in payment, repayment record, information on other lenders. This information is applicable on all loan products, credit cards and card withdrawals. CIBIL7 currently has information on loans advanced by member banks, financial institutions, housing finance companies and credit card companies.

Absence of a credit information bureau in earlier times: Reasons for

Laws relating to banking secrecy prevented banks from sharing any information pertaining to their customer with any third party. Information of a default became public only when the bank filed a suit for recovery of loan.

Present status of credit information bureau: What is it

The Credit Information Bureau (CIBIL), set up by HDFC and State Bank of India with Dun & Bradstreet of the US provides information on retail borrowers which is available to banks which share information in respect of their own borrowers. Lenders are provided with a credit information report for the purposes of informed decision-making.

The financial sector reforms with the advent of economic liberalisation in the 1990s led to opening up of the economy at all fronts, including the banking sector. The banking sector reforms have converted banking services into commodities with a large number of schemes being offered to the Indian banking consumer. Availability of adequate and reliable information on the prospective borrower is vital for taking decisions in relation to sanctioning of credit. In the case of lending by banks, the basis for the credit decision is the information furnished by borrowers; for a corporate customer, availability of audited balance sheet, income and expenditure and other audited financial statements bestow certain amount of authenticity to the information furnished, which facilitate an objective and commercial decision with regard to sanctioning of credit facilities. In the case of retail customers such as, small retail traders, individuals, professionals, etc. the availability of information becomes all the more important to validate, save for certain documents such as, salary certificates, income tax returns, etc.

Absence of reliable information on the existing as also the prospective borrowers has often been cited as one of the major causes for financial crises. With the financial sector becoming more complex and with the blurring of distinction between various financial intermediaries, the need for adequate, full and reliable information has been felt by credit institutions time and again. Credit information acts as a tool of risk management. A credit report summarises historical financial information collected to determine an individual's or an entity's creditworthiness, that is, the means and willingness to repay an indebtedness. Financial institutions utilise credit reports to gauge credit reputation, and thus determine whether to extend credit, and on what terms. With this in mind, the Credit Information Bureaus (India) Ltd. was set up in the year 2001 in the form of a company registered under the Companies Act, 1956 with a view to provide timely, accurate and relevant information to the members.

3. Credit risk management and non-performing assets

Lending business and credit risk

The origin of the problem of burgeoning NPAs lies in the quality of managing credit risk by the banks concerned. What is needed is having adequate preventive measures in place, namely, fixing pre-sanctioning appraisal responsibility and having an effective post-disbursement supervision. Banks concerned should continuously monitor loans to identify accounts that have the potential to become non-performing. The process of monitoring would be greatly facilitated by the mechanism of credit information companies which shall maintain information on credit-takers in the form of a database.

Non-performing Assets (NPAs) and credit risk

Increasing NPAs have a direct impact on the banks' profitability as legally banks are not allowed to book income on such accounts and at the same time banks are forced to make provision on such assets as per Reserve Bank of India (RBI) guidelines. Also, with increasing deposits made by the public in the banking system, the banking industry cannot afford defaults by borrowers since NPAs affect the repayment capacity of banks. Quite often credit risk management (CRM) is confused with managing non-performing assets (NPAs). However, there is an appreciable difference between the two. NPAs are a result of past action whose effects are realised in the present i.e. they represent credit risk that has already materialised and default has already taken place. On the other hand managing credit risk is a much more forward-looking approach and is mainly concerned with managing the quality of credit portfolio before default takes place. In other words, an attempt is made to avoid possible default by properly managing credit risk. Considering the current global recession and unreliable information in financial statements, there is high credit risk in the banking and lending business. To create a defence against such uncertainty, bankers are expected to develop an effective internal credit risk model for the purpose of credit risk management which may explain the formation and need of credit information companies. To minimise the effects of credit risk, bankers have been given directions to maintain adequate capital at all times to tide over an emergency. The direction primarily aims at the banks which are required to have adequate capital at all times to deal with defaulting borrowers and other events which create an uncertainty as to the recovery of credit by the banks. Therefore, how is this relevant to the formation and functioning of a credit information company? The answer lies in the credit-rating system of banks themselves.8 Banks while ensuring recovery of credit have to depend on something, and that could be information about the borrower, be it an individual or corporate. Banks employ various parameters for collecting information on a prospective borrower.

Importance of credit rating for assessment purposes

Fundamentally credit rating implies evaluating the creditworthiness of a borrower by an independent rating agency. Here the objective is to evaluate the probability of default. As such, credit rating does not predict loss but it predicts the likelihood of payment problems. Credit rating has been explained by Moody's a credit rating agency as forming an opinion of the future ability, legal obligation and willingness of a bond issuer or obligor to make full and timely payments on principal and interest due to the investors. Banks do rely on credit rating agencies to measure credit risk and assign a probability of default. Credit rating agencies generally slot companies into risk buckets that indicate company's credit risk and is also reviewed periodically. Associated with each risk bucket is the probability of default that is derived from historical observations of default behaviour in each risk bucket.

4. The credit information companies (Regulation) Act, 2005: A critical proposition

Application of the Act

Coming to the heart of the discussion, the Act, has its definitions clause which throws light on various aspects of the extent of operation of the legislation. The first point which needs to be highlighted here is the definition of borrower in Section 2(b) which states "any person" or "client" inclusive of companies, persons, individuals, partnership firms, HUFs but stays clear of State Government entities, PSUs and public corporations. Similarly Section 2(c) of the Act provides that the client of the bank includes a guarantor, in addition to a person who seeks or has sought financial assistance inclusive of loans, advances and hire purchase. Leasing facility, and venture capital assistance amongst others and at the same time also applies to a person who raises or seeks to raise money by issue of security or through other means like commercial paper9 or depository receipt or any other instrument. Therefore the Act is comprehensive in its application as it includes within its ambit investment and corporate banking as well as retail banking.

Formation of credit information companies

A credit information company formed under the Act is subject to regulations framed by RBI in the prescribed manner and equally, existing companies before the commencement of the Act need to get themselves registered within 6 months from commencement of the Act.10 The Act allows for the formation of multiple credit information companies subject to the provisions of the Act. Generally, the powers of determining the number of credit information companies at any given time vests in RBI which is subject to further review as required and it also holds powers to cancel registration upon the satisfaction of certain conditions as accorded in Section 6 of the Act.11 Prescribed limit on issued capital is 20 crores and minimum paid-up capital is 75% of the issued capital.12

Management of a credit information company

The management of a credit information company has been entrusted to a whole time chairperson and a part-time chairperson who can be of a non-executive nature. The Board of Directors should be constituted of persons having special knowledge in the fields of public administration, law, banking, finance, accountancy, management and Information Technology. RBI has powers under the Act to supersede the Board under certain circumstances which shall affect the structure of the credit information company in a considerable manner.13

Policy determination and powers of RBI

RBI has the powers to determine the policy of the credit information companies with regard to their functioning. In pursuance of its powers to frame policy under the Act, RBI shall give directions to the credit information companies, wherever it thinks it is in public interest, or in the interest of credit institutions, specified users, banking policy and proper management. The use of the words "as it deems fit" indicates large discretionary powers in the hands of RBI.14 The duties of the officials of the company formed under the Act have also been specified whereby for instance the auditors have been entrusted with the task of ensuring that the credit information company furnishes all the relevant documents to RBI and RBI has simultaneous powers to instruct for an audit of the company under certain circumstances. This audit has been termed as a special audit under the Act. Section 14 of the Act could be termed as the lifeline of the law as it enumerates in substantial detail, the functions to be performed by a credit information company. These functions may include collection of information pertaining to the financial standing of borrowers, to provide credit information to other companies as well, the relevant provision of credit scoring to be done, research activities and any other business as directed by RBI.15 Directions are also in store for the credit institutions which are to become members of the credit information companies such as requirement of registration and the period within which it is to be obtained for prospective as well as existing credit institutions. The credit information company has been given powers to refuse registration at its discretion and in due observance of natural justice principles of administrative law, the Act mandates the provision of giving a reasonable opportunity of being heard, the credit institution which has been refused registration.16 The only thing which may become a worrying factor in the future is that the order of RBI has been given unprecedented finality in terms of its implementation thus taking away the jurisdiction of ordinary civil courts as well as tribunals. The credit information company has been given powers to ask for credit information from its members as and when it thinks necessary, the information being provided to the specified user only and the information so obtained by the credit information company is not to be disclosed to any other person and this applies with equanimity on the specified user as well.

Dispute settlement and applicable law

As far as dispute settlement goes, when there is no remedy available under the Act, the matter shall be resolved by modes of conciliation or arbitration which procedure shall be governed by the Arbitration and Conciliation Act, 1996. The dispute settlement can be availed by credit information companies, credit institutions, borrowers and clients associated with the business of credit information in any other manner. The arbitrator should be appointed by RBI and the matter has to be resolved by the arbitrator within three months.17

Credit information and the privacy concern

The Act deals with the critical areas of accuracy and security of credit information thereby facilitating the provision of information to the users or members of credit information companies and at the same time, provides for maintenance of privacy of the consumer. The data relating to the credit information being provided by the credit information company has to be accurate, complete and duly processed and protected against any loss or unauthorised access or use, which shall be the responsibility of the credit information company. Section 20 of the Act enumerates privacy principles which shall be applicable on the credit information company, credit institution and the specified user. The principle has been made applicable for the purposes of processing, recording, preserving and protecting the information or data. The privacy of the consumer or the borrower shall extend to the purposes of the information, extent of obligation of the credit information company, preservation of credit information, networking of credit information companies, credit institutions and any other principles and procedures.

Privacy concern and the credit information report

The privacy of the borrower has been further taken care of by providing for the availability of a credit information report by the borrower on payment of the requisite charges. This helps in keeping a tab on the accuracy and relevancy of the credit information with respect to that borrower as the borrower himself can approach the relevant authority for the purposes of correction in the report. This however is subject to the nature of credit information obtained by the borrower as if there is a dispute with regard to the credit information, then no changes can be asked for by the company. The significance of the privacy of the consumer or the borrower with regard to the credit information is gauged by the fact that a heavy penalty of Rs 1 crore has been specified in sub-section (2) of Section 23 which may be imposed on the credit information company, credit institution or any specified user.

Furnishing of documents and prescribed punishment

The act mandates proper furnishing of documents to the relevant authorities and any deviation on this part may call for strict penalties.18 There can be no false transfer of information with regard to borrowers between credit information companies as well and if this is done, then a heavy penalty of Rs 1 crore can be imposed. Individual penalties can be imposed on the officials of a credit information company or other associated officials in their official capacity.19 The basic idea underlying offences and penalties prescribed under the Act is to prevent the circulation of false information amongst the credit information companies, credit institutions, specified user, and amongst themselves. Such an act is prohibited if done by commission or omission. With regard to powers of the court with regard to dealing with offences, its powers are subject to complaint made by the officer of credit information company or RBI. Apart from the prescribed mechanism of courts, RBI also has been given powers to impose punishment as it thinks fit.

Concerns of fidelity and security

The other provisions of the Act give powers to RBI for determining the fees for providing information to the relevant persons authorised under the Act and at the same time guides on the aspect of disclosure of information and maintenance of secrecy in certain circumstances. The employees and other officers of the credit information company would be required to maintain fidelity and secrecy with respect to the information in their hands and for this, reliance has been placed in the Act upon the practices and usages as shall be prevalent amongst the credit information companies. These functions shall also be subject to the rules and regulations made from time to time by the requisite authority i.e. RBI. However, the operation of the Act has been left entirely at the discretion of Reserve Bank as it has been provided that the Act shall cease to operate with an order made by the Central Government on the recommendation of Reserve Bank. This means that the application of the Act shall stand suspended with respect to a credit information company, credit institution and specified user, for a certain period of time subject to any modifications or exceptions.20

The Act and the application of other laws

Similarly, the Act respects the operation of other laws in relation to the context in which it operates and at the same time provides for changes in other laws.21 Section 45-E, sub-section (2) has been inserted in the RBI Act which facilitates the disclosure of any credit information under the CICRA, 2005. The change made in the Banking Regulation Act of 1949 allows a banking company to form a subsidiary company to carry on the business of credit information as per the CICRA, 2005.22 Similarly, the impact of the State Bank of India Act, 1955 has been lessened as Section 44(3), after amendment provides that the section shall not apply to the credit information company operating under the Act. In the same manner, the Act also amends other laws thereby calling for their non-application.

5. Conclusion

Thus the Credit Information Companies (Regulation) Act, 2005 is a tool of credit risk management whereby information stored about various consumers is stored for the purposes of retrieval, thereby reducing the uncertainty of loan amount recovery. Collection of information has now become easy as compared to the past and therefore the functioning of credit information companies has become even more justifiable. The functioning of the company formed under the Act is subject to the powers of Reserve Bank of India and cannot act in accordance with its own whims and wishes. Collection of information has to be facilitated from the ground level so that nothing is left out of the purview of the functioning of credit information company. RBI acts as the custodian on policy matters concerning the Credit Information Companies Act, 2005 and provides future guidelines and directions for the functioning of a credit information company. The success of a credit information company depends on the credit market in a country or the penetration of credit in the market. Therefore with large amount of money supply in the market by way of loans and advances by banks and financial institutions, it becomes imperative to have a system for tracking down the existing as well as prospective borrowers. Thus the act can be a facilitator in creating a strong credit culture in our country, thus improving the prospects of loan recovery and outstanding amounts from the borrowers, be it individuals as well as corporations. This can be said to be a step in the right direction, as it would lead to lessening of future NPAs and improving the bank's balance-sheets thus, reposing faith in the longstanding dictum, "prevention is better than cure".

One thing which needs to be highlighted at this stage is that RBI while framing of the guidelines for these credit information companies, should include proper guidelines regarding the advertising of the setting up of these companies so that all class of borrowers in the country become aware of these and thus can keep a check on the progress of their respective credit scores. RBI can also ask all banks, credit card companies, housing finance institutions and other credit lending organisations to formally announce the setting up of these companies and the concepts of credit report and credit score to their respective existing and prospective clients, keeping the rights of the consumers in mind.


Important Judgments

Reproduced from (2005) 13 Supreme Court Cases



(2005) 13 Supreme Court Cases 802

(Record of Proceedings)




D.B. MODAK AND OTHERS . . Respondents.

SLP No. 3620 of 2003+, decided on September 27, 2004

Intellectual Property—#Copyright Act, 1957—S. 13—"Originality"—What amounts to—Works in which copyright subsists—Law report—Version of text of judgments as published in a law report—Copyright, if subsists in—In SLP against High Court's common order in EBC v. Navin J. Desai, 2002 PTC 641, held, the matter requires consideration—Leave granted—Insofar as interim order is concerned, respondents stating that they have neither copied nor have any intention to copy the material/additions which may have been added by the petitioner in the judgments as published in their law report "Supreme Court Cases" in respect of years between 1969 and 2003 -+ Civil Procedure Code, 1908—Or. 39 R. 1

Ed.: For the facts of the matter see the impugned judgment of the High Court, EBC v. Navin J. Desai, 2002 PTC 641.


Advocates who appeared in this case :

Gopal Subramanium, Senior Advocate (Sumeet Malik, Ms Anitha Shenoy and Sai Krishna, Advocates) for the Petitioners;

P.N. Lekhi, Senior Advocate (S.K. Mohanty, Ms Sangeeta Goel, Lalit Sakhla, Lokesh Kumar, M.K. Garg, Maninder Singh, Ms Pratibha M. Singh, Angad Mirdha and Saurabh Mishra, Advocates) for the Respondents.


SLP (C) No. 3620 of 2003

1. The matter requires consideration.

2. Leave granted.

3. Printing dispensed with. Appeal to be heard on SLP paper-books. Additional documents, if any, may be filed within eight weeks. Call for the original record.

4. Insofar as interim order is concerned, Mr Lekhi, learned Senior Counsel appearing for the respondent states that his client has neither copied nor has any intention to copy the material/additions which may have been added by the petitioner in the publication in respect of years between 1969 and 2003.

SLP (C) No. 3621 of 2003

5. List the matter after one week.

Court Masters



(2005) 13 Supreme Court Cases 803

(Record of Proceedings)





SLP No. 3621 of 2003+, decided on October 15, 2004

Intellectual Property—#Copyright Act, 1957—S. 13—"Originality"—What amounts to—Works in which copyright subsists—Law report—Version of text of judgments as published in a law report—Copyright, if subsists in—In SLP filed against High Court's common order in EBC v. Navin J. Desai, 2002 PTC 641, leave granted—Held, pending decision of the appeal, respondents will be entitled to sell their CD-ROMs with the text of the judgment of the Supreme Court along with the headnotes which should not, in any way, be copy of the headnotes and text of the petitioners' law report "Supreme Court Cases" -+ Civil Procedure Code, 1908—Or. 39 R. 1—Intellectual property matters—Interference at interim stage

Ed.: For the facts of the matter see the impugned judgment of the High Court, EBC v. Navin J. Desai, 2002 PTC 641.


Advocates who appeared in this case :

Gopal Subramanium, Senior Advocate (Ms Anitha Shenoy and Sumeet Malik, Advocates) for the Petitioners;

Ms Pratibha M. Singh, Maninder Singh, Angad Mirdha and Saurabh Mishra, Advocates, for the Respondents.


1. Leave granted.

2. Printing dispensed with. Appeal to be heard on SLP paper-books. Additional documents, if any, may be filed within eight weeks. Original record be called for.

3. Pending decision of the appeal, the respondents will be entitled to sell their CD-ROMs with the text of the judgment of the Supreme Court along with the headnotes which should not be, in any way, be copy of the headnotes and text of the petitioner.

Court Masters


Important Enactments

The Contempt of Courts (Amendment) Act, 200623

NO. 6 OF 2006 March 17, 2006

An Act further to amend the Contempt of Courts Act, 1971

Be it enacted by Parliament in the Fifty-seventh Year of the Republic of India as follows:-

1. Short title.-This Act may be called the Contempt of Courts (Amendment) Act, 2006.

2. Substitution of new section for Section 13.-In the Contempt of Courts Act, 1971 (70 of 1971), for Section 13, the following section shall be substituted, namely:-

"13. Contempts not punishable in certain cases.-Notwithstanding anything contained in any law for the time being in force,-

(a) no court shall impose a sentence under this Act for a contempt of court unless it is satisfied that the contempt is of such a nature that it substantially interferes, or tends substantially to interfere with the due course of justice;

(b) the court may permit, in any proceeding for contempt of court, justification by truth as a valid defence if it is satisfied that it is in public interest and the request for invoking the said defence is bona fide.".


* Vth year students, National Law Institute University, Bhopal Return to Text

  1. According to the Saraiya Commission, "the grant of credit is a business which involves a risk of increasing bad debts if proper care is not taken and banks therefore ascertain the creditworthiness of borrowers from time to time and maintain credit reports on them. The process of grant of credit by banks comprise in the filing in of applications by the borrowers, scrutiny of the applications, assessment of creditworthiness and sanctions of limits by the branch manager or higher authority as well as the follow-up actions on the advances after they have been granted...." For more on the aspect of bank credit see Report of the Banking Commission (1972) under the Chairmanship of Shri R.G. Saraiya, which recommended setting up of a Credit Intelligence Bureau as a statutory body which would furnish adequate and reliable credit information to banks and other financial institutions. See http://www.epwrf.res.in/Archives1.asp?CatId=15 Return to Text
  2. Credit Information Scheme thus evolved by the Bank in 1962 was discontinued in 1995 for the following reasons: inordinate delay in submission of information by banks; the information furnished by the banks was often outdated and incomplete; the demand for such information from banks was very insignificant. Return to Text
  3. M/s Seyds in England and M/s Duns and Bradstreets in the US along with M/s Equifax Venture Infotek, M/s Experian and M/s London Bridge Software (ASPAC) Pte., Ltd. at some other places are examples of credit information agencies. Return to Text
  4. See Chapter III-A, Sections 45-C and 45-D of the Reserve Bank of India Act, 1934. By an amendment in 1974, Section 45-A was amended whereby the term "credit" was expanded so as to include means, antecedents, history of financial transactions and the creditworthiness of any borrower or class of borrowers and other relevant information. Return to Text
  5. Newspaper cuttings related to a particular customer, examination of financial statements (for studying current ratio, acid test or quick ratio, sales ratio, debtors ratio, net return ratio, debt/equity ratio, debtor/creditor ratio, solvency ratio and inventory turnover ratio). Return to Text
  6. One of the most influential credit scoring system in the US is the FICO score, devised by the Fair Isaac Corporation; 75% of all retail credit disbursals hinge on an applicant's FICO score. The FICO score changes as changes occur on the part of the borrower in handling of credit. If there have been credit problems in the past, their impact on the score lessens over time. Lenders in the US generally gaze at a borrower's latest FICO score. Source: "Keep Credit in check", THE OUTLOOK MONEY, June 15, 2005. Return to Text
  7. The purpose of CIBIL is to become a trusted partner of every credit grantor in every credit decision by offering the best possible solutions. It uses state-of-the-art technology to provide the highest standards of security and service and has a committed team to provide quality customer service meeting each and every customer's expectation of credit grantors. It forges effective collaborations and builds strategic alliances, wherever necessary and strives for excellence in credit reporting. For details see www.cibil.org Return to Text
  8. This credit rating system is based on the Basel Capital Accord which provides broad policy guidelines that each country's supervisors can use to determine the supervisory policies they apply. Some papers, such as the Capital Accord and the Core Principles, are drafted in the expectation that they will be followed more closely by supervisors worldwide. Basel has provided for a risk sensitive mechanism for the banks to apply in accordance with their requirements. It provides for a three pillar mechanism for the banks to employ in order to assess the capital adequacy at any given time and for those purposes the banks may collect information about their various customers as they like based on various parameters. The two principal purposes of the Accord are to ensure an adequate level of capital in the international banking system and to create a "more level playing field" in competitive terms so that banks could no longer build business volume without adequate capital backing. For more on the Basel Capital Accord, see http://www.securitization.net/pdf/eds Return to Text
  9. Commercial paper: A type of short-term negotiable instrument, usually an unsecured promissory note that calls for the payment of money at a specified date. It is not backed by any collateral; commercial paper is usually issued by major firms whose credit rating is so good that their notes are immediately accepted for trading. The notes are sold at a discount and mature in form of six to three months. Commercial paper is an important source of cash for the issuing firm; it supplements bank loans and is usually payable at a lower rate of interest than the prime discount rate. Strictly speaking, it includes those instruments that are used in commerce in place of money, as distinguished from paper used in investment, personal estate, speculative and public transactions. In addition to promissory notes, commercial paper may include drafts, bills of exchange and checks, acceptances, bills of lading, warehouse receipts, orders for delivery of goods, and express orders. Source: http://education.yahoo.com Return to Text
  10. See Section 3, CICRA, 2005. Return to Text
  11. For number of credit information companies, see Section 5(3), CICRA, 2005. Coming to Section 6 of the Act, its provisions are offset by the subsequent section which provides appeal against the order of Reserve Bank. Return to Text
  12. Section 8 of the Act provides for the minimum authorised capital which a credit information company should have and provides further for issued capital requirements as well as minimum paid-up capital at any given point of time. Return to Text
  13. See Section 9, CICRA, 2005. Return to Text
  14. For more on the kind of directions that may be issued by RBI, see sub-section (3) of Section 11 of the Act. Simultaneously apart from the powers of issuing directions, it has the powers of inspecting a credit information for the purposes of the Act. Return to Text
  15. No method of credit scoring has been specified in the provisions of the section and thus there remains a wide gap in the application and expectation part of the Act in terms of credit scoring. Return to Text
  16. RBI has the right to receive a copy of the order of rejection of the credit information company. A credit institution can appeal against the order of the credit information company to Reserve Bank of India. Time period providing for extension of appeal period has also been provided at the discretion of RBI. Return to Text
  17. The only fallacy with the above procedure of dispute settlement is that the arbitrator may not be having any knowledge of banking and financial matters and thus parties may be at a loss when it comes to determination of rights and obligations of the parties. The proviso attached to the section is a useful one as it provides for the arbitrator to be of the parties' choice. Return to Text
  18. For penalties, see Section 23, CICRA, 2005. Return to Text
  19. See sub-sections (4) and (5) of Section 23, CICRA, 2005. Return to Text
  20. See Section 32, CICRA, 2005. Return to Text
  21. The Schedule appended to the Act amends the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, the State Bank of India Act, 1955, etc. Return to Text
  22. After sub-section (3) of Section 19, the amendment made. Return to Text
  23. + From the Judgment of the Delhi High Court in FA(Os) No. 43 of 2001 : 2002 PTC 641 Return to Text
  24. + From the Judgment of the Delhi High Court in FA(Os) No. 45 of 2001 : 2002 PTC 641 Return to Text
  25. 23. Received the assent of the President on March 17, 2006 and published in the Gazette of India, Extra., Part II, Section 1 Return to Text
Search On Page:

Enter Search Word:

  Search Archives
  Search Case-Law
  Search Bookstore
  Search All

Archives of SCC Articles
  Subjectwise Listing of Articles
  Chronological Listing of Articles
  Articles Exclusively on the Internet
  More Articles...

Most Accessed Articles
Recent Articles