Credit ratings need to get personal, scores don't reflect full picture
Advancement in technology has raised the ability of credit data companies to access information about bank customers enhancing the dependability of the data, but it leaves out vital portions of an individual's financial life that would make a difference to his cost of borrowing.
Information bureaus that compile credit scores depend on data from banks that show how as a borrower one had behaved — whether one paid dues on time or missed payments leading to delays, or whether the borrower has defaulted. The score fails to consider the personal wealth, financial investments or even the savings lying in banks that determine a person's ability to meet obligations.
This is unlike a credit rating for a corporate where financial strength plays an important role in the rating assigned.
«Credit scores continue to be a major input in assessing credit worthiness of borrowers, but it may not truly reflect the financial worth of a potential borrower,» said Chitrabhanu KG, head of retail assets at Federal Bank. «The current credit scoring models provided by the bureaus are limited by lack of inputs of a borrower's financial assets which is important to decide on the debt servicing capacity.»
Retail credit in India is just about two decades old.
It began to emerge with the advent of new-age private sector banks such as HDFC Bank and IndusInd Bank in the mid-90s that were looking out for higher yields than what they were getting from corporate borrowers.
The government-owned banks that controlled more than 90% of the industry were focused on corporate lending as the state mandated it through central bank-directed lending. At the same time, the absence of data on individuals and the lack of consumerism did not provide much scope for
