Scrap unjust CIBIL, take over credit scoring, Su Venkatesan urges RBI

CHENNAI: CPM’s Madurai MP Su Venkatesan has criticised the CIBIL credit score system, calling it an opaque and unjust mechanism that disadvantages ordinary Indians while sparing corporate defaulters. He urged the Union government to immediately scrap it and restore the Reserve Bank of India’s (RBI) authority in determining creditworthiness.

“CIBIL score has become a form of harassment,” said Venkatesan, referring to the system managed by TransUnion CIBIL, a multinational company headquartered in the United States. “This foreign entity decides the credit eligibility of over 600 million Indians and 25 million small and micro enterprises.”

The MP highlighted that even a minor delay in repayment, a negotiated settlement with partial interest waiver, or utilising more than 30% of a credit card’s limit could significantly reduce a borrower’s CIBIL score. Applying for a loan at multiple banks to compare terms also leads to a drop in score, he said.

CIBIL scores range from 300 to 900, with 800 considered ‘excellent’ — a benchmark difficult for most to attain. Ironically, individuals with no credit history are often assigned a score of “-1” or “0”, and face higher interest rates if loans are sanctioned.

In many cases, he alleged, people are penalised for loans they never took, due to data errors. “Correcting such inaccuracies is extremely difficult. The entire system lacks transparency and fairness," he said.

Venkatesan contrasted the treatment of ordinary borrowers with that of corporate wilful defaulters. “Despite intentionally defaulting on large loans, they can settle with token repayments and become eligible for fresh loans within a year," he noted.

Before 2002, the RBI maintained borrower credit records. “That system was more transparent and accountable. The RBI must be reinstated as the authority for credit scoring, with mechanisms to quickly and fairly resolve disputes," he said.

Calling the CIBIL model inherently biased, he argued that it particularly harms the poor seeking loans from public sector institutions. “This entire process should be nationalised and brought under public scrutiny. A fair system must apply equally to corporations and common citizens.”