Banks are gearing up to reward customers and prospects for good behaviour. Indian banks like Bank of India (BoI), Bank of Baroda (BoB) and IDBI Bank said that it will reward good borrowers by giving them differential pricing on their home loan interest rates based on their CIBIL scores. 

According to Cibil COO Harshala Chandorkar, this could point to a larger trend of "loan interests more aligned towards a carrot-and-stick policy - where good borrowers can reap the benefits of their financial prudence and bad borrowers get weeded out or have to pay steeper rates". 

Credit Information Companies(CICs) in India such as Cibil, Equifax, Experian and CRIF Highmark are looking at wider coverage and criteria, from your utility bill payment on time to whether your parents paid off for the loan they got for you in college, this score could affect your loan prospects. Cibil assessing customer’s data should translate into benefits as credit score would give a better picture of their credit worthiness. 

In the last few years, with non-banking financial companies (NBFCs) and micro-finance institutions also sending information on borrowers to credit bureaus, lenders now have a wider and more comprehensive data set to assess. This could further widen as Cibil is currently in talks with telecom regulator Trai for access to data on prepaid recharges, and other agencies for utility bill payment history. 

Banks are planning to offer loans at 5-15bps (1 percentage point = 100 basis points, or bps) cheaper for customers whose Cibil score is above 700. A credit score normally ranges between 300 and 900 - based on credit behaviour and repayment history. Therefore, the higher the score, the more the chances of securing a loan.  

Banks are keen to provide all aspiring consumers with access to credit. But while doing so, they feel it is important to reward those consumers who have exhibited consistent credit discipline through timely payments and responsible credit management. 

But with many customers unaware of the role credit bureaus play and whether decisions taken earlier in life can come back to haunt one.   

The main concern is about the privacy of the customer data. As per law, customer’s credit report cannot be accessed by anyone other than the existing lender or a prospective lender to whom customer has applied for a credit facility. All such users are required to use the report for their own purposes and maintain confidentiality about these reports. But in India, data collection and aggregation methods are not completely secured. Most worrying point is that even customer’s consent is not taken before financial institutions share additional sets of information over and above what is mandated. In fact, it is common knowledge that it is possible to get the credit history of any individual easily, if you just know the right people in any bank. 

There is a requirement for a system to restrict availability of the report within the bank to ensure confidentiality of the report, once obtained. Or a periodic internal audit to check whether all reports were validly requested.