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What is CIBIL?

by BankBazaar.com Desk on    13 |

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CIBIL acts as weeding mechanism, that helps identify poor repayment track records. It helps protect lenders from giving credit to people and establishments who are unlikely to repay what is lent. Even if credit is provided, it is done so at a very high rate of interest, thereby ensuring that the bank is able to recover a considerable sum of money even if a default happens some time into the loan tenure.

The truth is today people spend more than our grandparents or parents ever did. Increasing incomes, desire to own a house in one’s early twenties, availability of variety in lifestyle and brand choices, a booming economy, growing number of enterpreneurs, new business establishments etc., are leading to a tremendous amount of money outflow. Money rotation is a key factor in a progressive economy and this means there is a lot of lending. How does one keep a tab on all the credit lent and how does one identify defaulters and refrain from lending to them again and again?

The government of India and RBI got together to bring CIBIL into existence. Currently Banks, Financial Institutions, State Financial Corporations, Non-Banking Financial Companies, Housing Finance Companies and Credit Card Companies are Members of CIBIL.

The idea behind setting up CIBIL is to gather all exisiting consumer and commercial credit information and pool it in a one point source for reference. As inĀ  an individual or commercial establishment could have accounts in several banks and credit from different lending institutions. All such data can be pulled out for a quick reference check on the individual or commercial establishment, seeking loans, to be aware of the repayment track record of the loan seeker and quickly decide on loan eligibility.

CIBIL acts as weeding mechanism, that helps identify poor repayment track records. It helps protect lenders from giving credit to people and establishments who are unlikely to repay what is lent. Even if credit is provided, it is done so at a very high rate of interest, thereby ensuring that the bank is able to recover a considerable sum of money even if a default happens some time into the loan tenure.

On the flip side, if you have an impeccable repayment track record, you can reap benefits from it! Banks provide a lower interest rate for sound credit profiles and these `Credit Information Reports’ can work to your advantage. It also helps lenders and Banks quickly process a loan, without wasting valuable time on research and background check of the loan applicant.

To protect creditors information CIBIL has stringent security measures in place. Only members of CIBIL can access the info and even they can do so only on a requirement basis.

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