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What is CIBIL (Credit Bureau) and why is it so important today?

Most customers in India, who have Credit Cards and Personal Loans are unaware of the existence of CIBIL (Credit Information Bureau (India) L...

Thursday, April 9, 2009

What is CIBIL (Credit Bureau) and why is it so important today?

Most customers in India, who have Credit Cards and Personal Loans are unaware of the existence of CIBIL (Credit Information Bureau (India) Ltd.) which will definitely play a very important role in their financial planning in future.
Take for example case of Mr.Tomar who dropped his Credit Card Cheque on the Payment Due Date in the Skypak Dropbox. However, for some reason the payment got updated against his Credit Card a day late and he got levied a hefty late Payment Fee of Rs.300 in addition to service tax. Not someone to be taken for a ride he called the bank and registered a complaint for reversal.
Most Credit Card Issuers get several such reversals every month amounting to Crores of rupees. Based on some internal thumb rules, they reverse out some charges and decline other reversals. (I would like to highlight the policy adopted by HDFC and Deutsche Bank where they give the customer the benefit of doubt and confirm the reversal on the call itself – the first complaint on reversals is always resolved in the customers favour) Very often it is very difficult for the bank to judge if the customer is telling the truth or there has been some inefficiency at the cheque pickup agency. Mr.Tomars request was declined and he did not get the reversal. His next recourse was to write to the Head Service department in the bank and after 30 days write to the Banking Ombudsman. I completely agree with him.
However what Mr.Tomar does not realize is that in the intervening period his other statement has already got generated and as his complaint has not got resolved he has not paid the Rs.300 late payment Charge he has been levied. As a result in the following month he gets reported to CIBIL as a defaulter who has not paid his Credit Card Minimum Amount Due. Two more statements get generated and now the amount with Interest and service tax has inflated to Rs.600. He has been reported to CIBIL thrice for not paying his Minimum Due – the impact of which is as follows.
Next time Mr. Tomar applies for a Credit Card or a Personal Loan which he desperately requires, the changes of it getting declined are extremely high.
Why does this happen?
1. Every bank before giving you a Credit Card or Loan will check your CIBIL Record
2. The CBIL Record gives the performance of the current Cards and Loans that you hold
3. The following can ruin your CBIL record completely
a. Not paying your EMI / Credit card Minimum Due every month
b. Not paying the dues for a longer period of time
4. Every time you do not Pay your Credit Card or Personal Loan outstanding the CIBIL score dips further and the amount of outstanding and the number of days outstanding is visible to other banks as well
In the current scenario banks will think a million times before giving credit to a customer who has a bad record on CIBIL. If you have a bad record on 2 or more relationships or have not paid your Credit Card Outstanding for 6 months (write-off case) then please forget about it. This will definitely impact you as more and more banks start using CIBIL, which eventually may be used for Pre Employment checks, Utility Payment checks as well. The day when the interest rate given to you depends on your CIBIL score is also not very far away.
Please keep the following in mind!
1. Whatever happens, try to be regular with your payments
2. If you have a dispute on the Credit Cards, you can take up the issue, but please continue to pay your Minimum Amount Due every month. You can ask for the subsequent reversal later.
3. Head Service Departments as well Banking Ombudsman are useful authorities and my experience with them has been great, they do take fair decisions – so pursue your case with them while you continue to make the Minimum Payments to keep your Records from going to CIBIL
4. It is not worthwhile ruining your CIBIL record for a few hundred rupees of Late Payment Fee. Do realize that the bank does not care about the consequences of passing your records to CIBIL – it is only a file upload for them. You should definitely fight your case – but do not hurt yourself.
I think my details have already been reported in CIBIL. What do I do?
You can be reported to CIBIL because of 3 reasons
1. You have not paid your dues – You definitely need to be reported. Once you pay your dues over a period of 24 months your score will improve provided you start making regular payments again.
2. Erroneous updation by bank – Due to an error at the banks end due to inefficiencies in their Cheque Pickup agencies etc. they may not receive the payments in time and they incorrectly report your details to CIBIL, then they initiate the process to delete the name from CIBIL or sometimes the customer finds out when the application gets declined and needs to rush bank to the bank to get the record rectified
3. If you are currently in a dispute with the bank (especially payment not received etc) – I would suggest you settle it quickly and as a pre condition as for settlement, ask the bank to delete the reporting they have done to CIBIL.
Remember that your CIBIL score will improve over time once you start making regular payments. So do not worry, if your record is bad and CIBIL score is low, just continue making your Loan and Credit Card payments on time and it will pickup.
Personally, the biggest problem I have with the CIBIL system is that Customers cannot view this data and point out any incorrect reporting. Due to deficiencies and inefficiencies in bank there are several incorrect uploads on CIBIL and these uploads affect the customer’s Credit Record in a big way. There is no way the customers can get to know of these goof ups and rectify the same. They will get a rude shock one day when they go to seek Credit. This is a broader consumer battle that we will need to fight.
For any further questions on CIBIL do write into ask.pranav@gmail.com
Also do visit my Personal Finance Blogsite http://www.simplybank.blogspot.com/ for useful information in the Personal Finance space.

Product Review: Jet Airways Citibank Platinum Credit Card

The Jet Airways Citibank Platinum Credit Card is one of the better Travel Credit cards in the country.
Things You Must Know
1. The Jet Airways Citibank Platinum Credit Card has an annual fee of Rs.3000 and is targeted to a specific profile of customers who should ideally satisfy the following criteria
a. Spend at least Rs.20,000 on the Credit Card
b. Like to travel by Jet Airway and would usually want to travel at least once a year on a ticket redeemed through air-miles
c. Are Ok with not having Reward Points as all the Reward Points get auto converted to JP Miles
2. If you like cashback, redemptions against fuel vouchers etc. and other flexible options for rewards, then please stay away from the Jet Airways Citibank Platinum Credit Card
Differentiating Features
The following are the great features about the Jet Airways Citibank Platinum Credit Card
1. For every Rs.100 spent on this card you get 4 JP Miles. Each worth approx 40 paise* when you go to redeem them. This is the highest ratio in the Credit Card Industry today
2. You get an Upgrade voucher for every 8000 miles you accumulate, which entitles you to Business Class travel on next domestic trip. You also get Upgrade Vouchers on renewal. The strategy is to accumulate Upgrade Vouchers and use them for the next international trips and Business Class on Jet Airways International Flights is a once in a lifetime experience
3. Now that master Card has withdrawn the lounge access program, this is the only card which entitles you to lounge access on domestic airports
4. For ant transaction using this card on http://www.jetairways.com/ you get 8 JP Miles for every Rs.100 spent which is a great deal in helping in accumulate more miles
5. Both Citibank and Jet Airways have great Internet & Phone Platforms and my experience with them has been good.
However after Citibank slapped Charges on several innocent customer’s way back in 2004 for Insurance & Account Maintenance, no matter how hard they may try to behave differently today, I always scan my statement for erroneous charges that may have been levied. This ghost should and will haunt them for a very long time.
*One way journey to Chennai is approx 10000 JP Miles. A one way Chennai ticket will cost me Rs.4000 so the value of each JP Mile is 40 paise

Saturday, April 4, 2009

Now withdraw Cash for FREE from any ATM!!

All ATM Card Holders please note ........
All ATM Card Users can now withdraw cash from any bank ATM for FREE irespective of the number of transactions and the withdrawal amount. The previously levied fee (usually Rs.20 plus tax) has been waived based in a circular issues by RBI and all banks are to have complied with it by 1st April, 2009.
This is a boon to customers as I experienced yesterday, when I could withdraw money free of transaction carges on my Citibank ATM Card at a Bank of Centurion Bank ATM outside my gate and not have to Drive to the Citibank BKC ATM which is a 5 min drive away. For most of the banked population (except the high net woth guys) the Rs.20 charge for ATM withdrawal does make a difference and customers are unwilling to pay it to access the other banks ATM.
Through this circular, RBI has made life easy for many customers and rubbed the banks the wrong way. While for the customer it is immense convinience, for bank it is an incremental cost anywhere between 30 lakhs to 1 Crore per month depending of the Number of customers and Geographical spread ofthe ATM Network.
Customers should note that very time they use another bank ATM, for e.g. if I withdraw money from the Centurion Bank TM with a Citibank Card, Ciitibank will still have to pay Centurion Bank Rs.20 or so fo the transaction, but Citibank will not be able to pass on that charge to me. Hence no bank will promote this service in a big way - because it directly impacts their bottom lines. However what they will be missing is that this can be converted into an effective acquisition strtegy. Several people preferred ICICI / HDFC over the foreign ones, because of the ATM Coverage (especially my friends in FMCG Sales Profiles, who would love to bank with Citibank / HSBC because of their powerful Internet / Phone Banking platforms). These foreign banks can now turn this RBI Madate on the head and make the most of it and publicise it well ... but it is unlikely to happen as in my opinion they will definitely prefer avoiding a tangible lost rather than invest it in an intangible gain.
However, I would like to salute this move of RBI, who would have taken this decision keeping only the customer in mind even though each and every bank would have opposed this move ..... the good part of it being, it will force the banks to reconsider their ATM strategy and if possible outsource it to a centralised vendor who will manage it across banks ...... which I eventually see resulting in a more efficient ATM banking system in India.