RBI Tightens Personal Loan Rules: Credit Scores To Be Updated Every 15 Days

The Government of India’s RBI has recently changed the norms regarding credit records. As the first of January 2025 comes, lenders must update credit records every 15 days, instead of once a month which is the case until now. The goal behind making these rules is to protect those disciplined regarding repayment of the credit they have taken, while simultaneously reducing the risk for lenders.

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What Is A Credit Score?

A credit score is calculated on a numerical scale of 300 to 900, which assesses a person’s ability to repay a loan. High credit scores are advantageous and make getting loans at lower interest rates much easier. Various aspects including the following influence credit scores:

• Payment History: Paying back loans or credit card bills on time.

• Credit Utilisation: How much of the given credit that the debtor use?

• Credit Mix: Combination of numerous credit products such as home loans and credit cards.

• Recent Credit Enquiries: Number of times a person applies for a loan or a credit card in a single period.

Effect Of The 15-Day Rule

Credit services are now able to make the requisite modifications on credit reports much quicker due to the new 15-day reporting regulation. Because of this change, both the borrowers and lenders are now able to enjoy instant updates and better decision-making. Here’s a look into the difference that results from this regulation:

1. Faster Credit Updates

Until now, a closure of a credit update case could take as long as 40 days as it is only updated once every month. This new regulation ensures that it gets done faster and aims to ensure that borrowers can see the change that their payment or default caused to their credit score.

2. Better Risk Assessment

Through this change, lenders will be able to evaluate live credit histories which will allow them to make better loan acceptance decisions. If a loan taker is a regular repaying client, they will be able to be offered credit options at a much faster speed.

Addressing Key Issues In The Credit Market

The new regulation aims to address some key problems in the credit market. The regulation intends to promote transparency and reduce the careless behaviour of loantakers and lenders. Here is what it aims to solve:

1. Managing Multiple Loan Applications

Particular attention is given to first-time Loan takers since they tend to apply for several loans at the same time and find it hard to service the loans. These repetitive updates will enable better supervision of the repayment behaviour in real-time which will prevent wrongful lending.

2. Stopping Loan 'Evergreening'

When a Loan taker takes a new loan to pay back an old one, there is renewing debt, which leads to an endless vicious cycle of debt. These activities can be kept in check by regular reporting of such activities.

Expert Insights

As posited by Sachin Seth, chairman of CRIF High Mark, “Equated Month-to-month Installments, or EMIs, are usually non-uniformly spread over the month. Also, monthly updates can postpone credit assessment by several weeks, resulting in old data for the creditors. There is a further reduced cycle for credit evaluations to only 15 days. This timely availability of accurate information would enhance the decision-making process of all parties whether lenders or borrowers.”

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Benefits And Challenges

The new rule brings both advantages and challenges for loan takers and lenders. While it improves credit updates and risk management, it also requires changes in technology. Here’s a quick look at the benefits and challenges:

Potential Benefits

• For Borrowers: Disciplined loan takers will benefit from better loan deals due to faster recognition of improved credit behaviour.

• For Lenders: Real-time credit updates will enhance risk assessment and reduce defaults.

Challenges

• Lenders and credit bureaus need to upgrade their technology infrastructure to comply with the new system.

Conclusion

The RBI’s 15-day reporting rule is a bold move to enhance the transparency and credibility of the credit system. It benefits loan takers by offering faster recognition for responsible financial behaviour, while lenders gain improved tools for risk management. In the long run, this change is expected to create a more dynamic and efficient credit market in India.

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