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Banks to grade borrowers to curb defaults

India's credit bureau, set up by Citigroup Inc, ICICI Bank Ltd and other lenders, will begin grading 100 million borrowers from November 2007 to help banks curb defaults and credit worthy customers pay lower interest rates.

Apnaloan.com Research Bureau

22 Aug 2007

India's credit bureau, set up by Citigroup Inc, ICICI Bank Ltd and other lenders, will begin grading 100 million borrowers from November 2007 to help banks curb defaults and help credit worthy customers pay lower interest rates.

The Credit Information Bureau (India) Ltd will evaluate ages, salaries and existing loans to assign individual ratings. Multiple applications or using one credit card to repay another will result in lower grades and higher borrowing costs, report agencies. A nationwide database will help Indian banks reduce loans to risky borrowers. In the last two years, the interest rates have risen seven times and this is expected to have an impact on the number of defaulters, according to Standard & Poor\'s. The grading will help the borrowers from falling into the defaulter's list.

Banks have gathered borrowing histories which will include details like missed installments and repayments from 2004, which was when the Credit Information Bureau was set up, with a database of 4 million borrowers. The credit bureau in collaboration with a unit of TransUnion LLC, a US-based provider of credit reports, will begin assigning three-digit scores to borrowers before Diwali.

Along with its focus on defaults, the Credit Information Bureau, or CIBIL will also maintain histories of borrowers who repay in full and on time, helping them get lower rates on loans. Banks can access client information in about 1 1/2 seconds, from as long as three weeks before the bureau was set up.

For lenders, the scoring will help them assess the risk of a customer and decide on the probability of default. They may begin offering larger discounts in an effort to retain high- scoring customers.

The Credit Information Bureau may include borrowers' mobile phone and insurance track records when government curbs on sharing retail data are lifted.

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