What role can be played by "Information Infrastructure"towards solving the issues of bad loans, insolvency and bankruptcy in India? Discuss in the light of the so called "information utilities"concept as enshrined in the Insolvency and Bankruptcy Code 2016.

Published: July 30, 2017

A sound and efficient information infrastructure is prerequisite for effective functioning of the corporate insolvency resolution and also to a great extent, the NPAs problem. The Bankruptcy Legislative Reforms Committee (BLRC) {headed by T. K. Viswanathan} had recognized that the “asymmetry of information” between buyers and lenders as major barrier not only for fair negotiations but also the rising bad debt problem. This is because a creditor must have correct and reliable financial information about the debtor. This committee had recommended creation of “regulated information utility” that would make available all relevant information to all shareholders in resolving the bankruptcy.  The panel suggested that these information utilities would collectively capture the comprehensive picture of the financial liabilities of all the entities and this information would be revealed to stakeholders to facilitate the resolution of insolvency and bankruptcy. This concept has been introduced in the Insolvency and Bankruptcy Code 2016 and provisions related to the information utilities have been notified by the Insolvency and Bankruptcy Board of India. These provisions have also become effective since April 1, 2017.
Functions of the Information Utilities
The information utilities would get the information authenticated by the parties and store this financial information with it. Once they become operational, they will be source of not only credit information but also facilitate India’s ranking with respect to efficient insolvency regime. They will obviously speed up the insolvency process.
Potential Role in NPAs
One of the key reasons for a huge NPA problem in the country is lack of proper system of credit information. An RBI committee had also recognized that adequate and quality information on counter-parties (debtors to banks) is a critical component and India lacks in that. If there is an efficient system of credit information, it would not only reduce cost of intermediation but also allow the banks to effectively price, target and monitor the loans. We note here that there are several agencies for credit related information  in India. For example, Credit Information Bureau (India) Ltd (CIBIL) started working in 2004 to collect and maintains records of an individual’s payment history on loans and credit cards on the basis of the periodic submission by banks and credit institutions. Similarly, we enacted the Credit Information Companies (Regulation) Act (CICRA) in 2005 under which some Credit Information Companies (CICs) were established. Then, the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) also maintains information related to the registration of transactions of securitisation, asset reconstruction of financial assets and creation of security interest etc. However, still we don’t have a robust information infrastructure because of lack of standardisation of information, authentication of information, expansion of information base etc.

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