The government’s decision to allow 49 per cent foreign investment in credit information bureaus could provide some succour to the two-wheeler and commercial vehicles industries, which have seen sales slacken on poor credit flow over several months.
The credit information bureaus evaluate the credit worthiness of loan seekers and sell the information to banks and credit companies. This could help bring down banks’ cost of appraisal and loan approval.
The setting up of credit information bureaus has been caught up in inter-ministerial wranglings on the foreign equity to be allowed in them. Last month, the Union Cabinet decided to allow up to 49 per cent foreign direct investment (FDI) in listed credit information companies.
Two-wheeler sales have declined by 8.04 per cent to touch 6,074,867 between April 2007 and January 2008. Banks and credit companies are chary of lending against motorcycles and scooters because of rising defaults, which have climbed to over 10 per cent of all loan approvals.
Sales of commercial vehicles, mainly trucks, have also been hit by the weak credit flow. Sales are down 9.24 per cent in the 10 months of the current financial year at 179,933. Credit worthiness in this segment is vital because 73 per cent of truck buyers are drivers.
The Credit Information Bureau of India Ltd (CIBIL), set up in 2001, is the largest company providing customised credit information to banks and financial institutions. Companies such as the UK’s $3.8 billion Experian see big business in India after the Credit Information Act came into force last year. The Act provides the legal framework within which these companies can collect, process and share information on borrowers.