The Credit Information (Regulation) Act 2005, (CIRA) has laid down the legal framework within which credit information bureaus can collect, process and share credit information on borrowers of banks and foreign investments.

In recent times the credit information market has grown tremendously inviting a number of credit rating agencies and investors who see it as a lucrative sector.

As per CIRA Credit Information means any information relating to—

  1. the amounts and the nature of loans or advances, amounts outstanding under credit cards and other credit facilities granted or to be granted, by a credit institution to any borrower;

  2. the nature of security taken or proposed to be taken by a credit institution from any borrower for credit facilities granted or proposed to be granted to him;

  3. the guarantee furnished or any other non-fund based facility granted or proposed to be granted by a credit institution for any of its borrowers;

  4. the creditworthiness of any borrower of a credit institution;

  5. any other matter which the Reserve Bank may, consider necessary for inclusion in the credit information to be collected and maintained by credit information companies, and, specify, by notification, in this behalf.

Credit Information Company means a company formed and registered under the Companies Act, 1956 (1 of 1956) and which has been granted a certificate of registration under sub-section (2) of Section 5 of CIRA.

The Government of India by issuing Press Note No. 1(2008) has capped the Foreign Direct Investment (FDI) limit in Credit Information Companies (CIC) at 49%, bringing it down from existing 100%. The above-mentioned ceiling of FDI in CIC is subject to the approval of the Government, regulatory clearance from Reserve Bank of India (RBI) and legal purview of CIRA.

The Government has permitted 24% of Foreign Institutional Investment (FII) in CIC, which are listed at the Stock Exchanges within the overall limit of 49% for foreign investment. The foreign investors have to take prior approval of Foreign Investment Promotion Board (FIPB).

The Government is planning to make it mandatory for foreign investors to report to RBI whenever they acquire more than 1% in a credit information company. Also, no single entity would be allowed to hold, directly or indirectly, more than 10% in such a company.

Hence subject to the latest guidelines released by the Ministry of Commerce & Industry FIIs will be on the line of the following conditions:

  1. No single entity should directly or indirectly hold more than 10% equity

  2. Any acquisition in excess of 1% will have to be reported to RBI as a reporting requirement; and

  3. FIIs investing in CICs shall not seek a representation on the Board of Directors based upon their shareholding.

With the policy on foreign investment in CIC the regulatory will ensure that the investors adhere accordingly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.