Big Brother is Watching

The Big Brother is watching: The phrase from the famous George Orwell novel 1984 has finally arrived in India. Well fortunately we still do not have cameras installed to capture every aspect of our life but we are close.

Let me explain but first let me give you some real life incidences:


1. One young smart associate in my company ( let us call him Chatur) has moved to NCR from outside of Delhi. Within a year Mr. Chatur got 5 Credit cards and changed his cell phone number 3 times. In one year he bought a Color TV, and home theater,a microwave, and few top of the line sunglasses, jeans and sport shoes, he also watches movies and goes to pub every weekend, went on vacation to Goa with his gang and today owns more than 1.5 Lakhs to the Credit card companies. His plan of action: Cut the cards in half, change in cell phone number, change address and get new cards from other credit card companies.

2. Another young man, younger brother of one of my friends a very bright software engineer got his H1 about 5 years ago and just before moving to US he bought all kind of stuff specially gold on his credit card specailly jewellery and moved to US. He has given his permanent address as the address of his landlord.

3. A young lady in my team abruptly resigned mentioning that her parents have found a suitable match for her and she is in agreement with same and she needs to move back to her home town. Late on we came to know that she has also shopped on her Credit cards to the maximum limit and now the banks are looking for her.

Do we see a pattern here?

Let me try to give the same to you:

1. All of them are young
2. High paying BPO or IT jobs
3. Give their local address as the permanent address
4. Fund their lifestyle which is beyond their means even after high salaries with their credit cards.
5. Credit card companies are lousy in checking the credentials provided by applicants.

But things are changing now, in fact they have already changed:

1. Mr. Chatur changed companies and joined another company, like most BPO companies this company also opened his salary account. Every thing was ok for 2 months but after 3 months the bank froze his salary account and he could not operate the same, because Mr. Chatur's one of the defaulting cards was from this bank and they could corelate the two and are now asking for the money back. Mr. Chatur requested his company to issue him a salary check but the company is very clear that the salary is issued only through direct transfer to salary account and he should settle his problems with the bank directly.

2. The young software engineer had to come back to India due to slowdown and took an assignment with another company in India. He applied for a home loan but was refused because of the earlier defaults on his credit cards. Now in case he wants the home loan then the home loan company is demanding that he clears all his credit card dues.

3. The young lady who did shopping on her credit cards and moved to another town to be with her husband is being harrased by collections agent of the bank. Apparently they have been able to trace the young lady to another city as she applied for a personal loan to redo the bachelor pad of her husband and make it worthy of a lady.

These are not isolated cases but a regular phenomean in Indian Metros, banks in their competetion to have maximum number of retail customers using their products did not followed strict checks on the applications. It was common for the agents of banks the DSAs to guide the applicants on how to fudge on the applications e.g. Change the mothers maiden name, do not show your other credit cards, show a different address on the application e.g. do not show the black listed areas etc. etc.
The verification agents were suitably rewarded by the DSA. The DSAs are rewarded on basis of sucessfull applciations and not how these accounts perform in future ( that is what is my understanding)

But now things have changed when the banks were trying to get maximum share of the customer acquisition things were not very diligent in the reveiw of application but now with slow down and NPA ( non performing assets of the banks increasing with every passing days) Banks have become more stringent in doing a very thorough check on the same and helping them is the credit bueaue. Currently the most active and visible credit bureau in India CIBIL ( http://www.cibil.com/ )
Cibil is the first credit bureau in India. A credit bureau is a company that tracks your payment history on all your borrowings be it:

1. Credit Cards
2. Home Loans
3. Personal Loans
4. Automobile Loans

Net net any kind of borrowing that you take from a member of CIBIL ( which is almost everybody in Indian financial market)
the member will report to CIBIL any borrowing to CIBIL and then will also keep CIBIL informed about any payment defauts, and any delays in the payments. Then CIBIL creates a comprehensive database for the same and shares it with its member banks and finacial institutions.

So while it was earlier very easy to take loan from one bank and then go and repeat the same with another bank it will become more and more difficult with every passing day. Credit bureaus are not a new concept they have been around for some decades in developed markets like US.

With banks having a record of your payment history will be reluctant to make advances or give credit cards to a person with known credit history of default. Indian consumers are at a disadvantage compared to the borrowers in US because in US there is a system where you are eligible to get a free copy of your credit report every year from all the 3 major credit bureaus in US namely:
Equifax
Transunion
Experian

One is also entitled for a free credit report if you have been denied credit in last one year citing bad credit as one of the reasons.

The advantage of this system is that you can go back to the bank who has reported the problem in your payment and either get it corrected or dispute the same as wrong. Basically you have a authority to challeng any wrong doings that have been attributed to you. No such process exists in India so you are totally at mercy of CIBIL and its reporting which makes you totally dependent on the reporting of the banks and CIBIL. Hopefully it will change in future. Currently CIBIL webiste says that the borrower has to contact the reporting banks and get it rectified. The exact process is not mentioned clearly and one is also not sure what all can be reversed.

Any ways coming back to our original topic of big brother is watching the important thing to note is that you can no longer take your banks for granted and they are keeping a track of your payment history and reporting it to CIBIL.
Now you may wonder what disadvantages you may have if you do not make the payment on time or do not make the payment altogether:

1. Any delay in payment is considered as a delinquency and you are bound to recieve calls from collection agency, even personal visits ( not a very pleasant thing to happen to any body) And Indian collection agencies are notorious for their unprofessional conduct.
2. Your any future loan application will be rejected and this may be for some thing you really need and plan to make the payment on time e.g. a new home or that car that you have been eyeing for some time.
3. Even if your new loan application is approved the intereset rate will be so high that it will cost you much more than rate of interest charged to a person who has good credit history.

We will continue on this topic with some more examples.