RBI new guidelines for cease terminated loans in CIBIL
Let’s imagine a scenario: you’ve taken a loan from an RBI-authorized bank or NBFC. In the middle of your repayment, the RBI cancels their license due to some suspicious activities or legal violations. Consequently, the lender stops reporting your credit information to the credit bureaus, which negatively impacts your credit score. It sounds helpless, right? If you’re dealing with a similar situation, here’s a good news for you! The RBI has recently introduced new guidelines for such cease terminated loans in CIBIL, so that you don’t have to suffer even when the associated financial institute loses its regulatory status.
As a credit repair agency, we observe that many customers’ credit scores are damaged by such “cease terminated” loans in their CIBIL report such as PC Financial Services, Rhino Finance, and many more, as they stop credit reporting in the middle of the loan tenure.
Moreover, when you complain to CIBIL, they do not interfere in such cases since these entities are no longer governed under the Credit Information Companies (Regulation) Act (CICRA), 2005. In this scenario, the RBI’s new guidelines serve as a safeguard, and protect the fundamental rights of a borrower. Let’s explain how?
Background of the circular
Under the Credit Information Regulation Act, 2005 (CICRA), only the regulated entities officially classified as “Credit Institutions (CIs)” are authorized to furnish borrowers’ credit information to Credit Information Companies (CICs). Similarly, CICs can collect credit information only from their member CIs, as defined under CICRA, 2005.
Therefore, as per the provisions of the Act, entities whose licenses have been cancelled by the RBI can no longer be deemed as Credit Institutions. This means that borrowers’ repayment histories will no longer be updated with CICs, even if they continue to make payments or clear their dues.
In simple terms, if you have outstanding dues on a loan from a cease-terminated bank or NBFC, or if there are errors in your CIBIL report related to such loans, the associated institutions are no longer responsible for updating or correcting the credit information in your CIBIL report.
To address the hardships faced by borrowers and ensure continuity in the credit reporting system, the RBI implemented a new credit information reporting mechanism subsequent to the cancellation of the license or certificate of registration.
These guidelines specifically apply to the banks and NBFCs whose licenses or certificates of registration have been officially revoked by the RBI. The new circular was issued on October 10, 2024, and will take effect within six months from the date of itspublication.
Key features of the circular
- As per the RBI’s new guidelines, all banks and NBFCs with a cancelled license will be treated as “Credit Institutions” under the Credit Information Companies (Regulation) Act, 2005 (CICRA). This classification ensures that the cease-terminated lenders are still obligated to report their customers’ credit data to credit bureaus.
- The entities must continue credit Information reporting for the borrowers who were onboarded and reported to CICs before the cancellation of their registration. This reporting must continue until the loan cycle is completed or the terminated entities are wound up, whichever comes first.
- The entities with cancelled licenses will remain have access to Credit Information Report (CIR) only for those borrowers, who were onboarded are reported to CICs before getting terminated by the RBI. This ensures that they have still the authority to make the changes in their pre-existing customers’ credit report.
- On the other hand, CIBIL and other credit bureaus are instructed to tag such entities as “License Cancelled Entities” in the borrowers’ credit reports.Additionally, credit bureaus are prohibited from charging any annual or membership fees from these terminated entities.
- All other instructions regarding credit information reporting from Credit Institutions (CIs) to Credit Information Companies (CICs) will remain unchanged.
Impact on borrowers
From the borrower’sperspective, this is a protective initiative taken by the Reserve Bank of India (RBI). Now, the borrowersdon’t have to penalise for incomplete and outdated credit recordsassociated with cease terminated loans in CIBIL report.
Instate of that, borrowers should be aware that if a lender is terminated, they are still obligated to report the repayment records until the loans are fully repaid.
Therefore, they need to contact the lender and must continue the remaining payments timely. Otherwise, it will be considered as the borrower’s fault and lower their CIBIL score.
On the other hand, for financial institutions whose licenses have been cancelled, the circular provides clarity on their responsibilities and ensures the continuity of the credit reporting process.
Ultimately, this provision not only safeguards borrowers’ interests but also upholds the integrity of India’s robust credit reporting ecosystem. Hope, now you deal with the cease terminated loans in CIBIL in a better way.