The Credit Information Companies (Regulations) Act, 2005

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Banks and Financial institution has an important place in the corporate structure. There are many people who run their business on credit. Credit which in literal sense means “to borrow” opens up the pool of borrowers who obtain money from the financial institutions. Financial Institutions in turn is ready to invest in the business. The problem arises when the debtors are unable to pay their debt and it converts into non performing assets which becomes trouble for the banks. In order to eradicate the problem, banks take due care before investing into any business. Here comes the dilemma which banks encounter that is whom to give and whom not to give. To decrease the gap between banks and borrowers, Credit Information Company has been evolved. The primary function of Credit Information Company is to keep records of all businesses and prepares a score card and credit information reports for the customers and the banks shortlist the worthy customers for giving credit. It reduces the risk thereby facilitating a smooth transaction between the two. The statutory recognition has been given to the credit information company by enacting the Credit Information Companies (Regulations) Act, 2005 (here in after referred to as “The Act”) which was passed in May, 2005 and was notified in the Gazette of India on June 23, 2005. The objective of the Act is to regulate Credit Information Company thereby facilitating the efficient distribution of credit in the country. There are total of eight chapters and thirty seven sections in the Act. Section 34 of the Act provides certain statutes mentioned in the schedule of this Act which should be amended in the likewise manner. There are also rules and regulations pertaining to the Act which has been implemented on December 14, 2006.

The Act includes three different persons i.e. the credit information company, the credit institution and the specified user. The credit information companies are those which are registered under section 5(2) of the Companies Act, 1956 or section 2(20) of the Companies Act, 2013.  Credit information includes loans or advances amount, outstanding credit card amount, securities taken for credit facilities and the credit worthiness of the borrower. Specified users are the credit institution and the credit information company which is registered under any other credit information company.

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Credit institution, as provided in Section 2(f), includes the banking company which further categorizes into various parts; some of them are State Bank of India, non banking financial company, public financial institution, the financial corporation and many more. Section 15 states that within three months of the Act coming into force, every credit institution has to be registered under any credit Information Company. As per the Act, the credit institution which exists after the enactment of the Act also needs to get itself registered within three months with any credit information company. However, those institutions which refrains itself from becoming the member of any credit institution company, in that case, the Reserve Bank of India intervenes. The Act empowers Reserve Bank to take action either suo motu or when complaint is being filed by credit Information Company thereby directing the credit institution to get itself registered. If not adhered to, Reserve Bank intimates other authorities to take strict action against the same. The credit information company also has the option to become member of any other credit information company by complying with the above process.

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The credit institution after becoming the member to any credit information company possesses the right to obtain any credit information from the company. Section 17 of the Act as well provides that the credit institution has to furnish information to the company whenever necessary by giving notice in writing to the credit institution. The person who is not mentioned in the Act can be authorized by any court or tribunal or any other Act which is in force to access the information and if done in an unauthorized way, they will be punished with fine of up to one lakh rupees.