RBI’s New Regulations: Why Getting Multiple Personal Loans Is About to Get Harder
RBI’s New Regulations: Why Getting Multiple Personal Loans Is About to Get Harder
Beginning January 1, 2025, the RBI requires lenders to refresh credit records every 15 days.
Starting January 1, 2025, a significant regulation from the Reserve Bank of India will require lenders to refresh credit bureau records every 15 days. This change has the potential to revolutionize the calculation and reporting of credit scores, allowing for a more timely and precise reflection of borrowers’ financial activities. In the past, updates occurred monthly, which often postponed the impact of loan repayments.
This directive was announced by the RBI in August of the previous year, providing lenders and credit bureaus with a deadline until January 1 to enhance their systems.
Your credit score ranges from 300 to 900 and indicates your creditworthiness and the probability of repaying loans.
The benefits of transitioning to a 15-day reporting system in the long run surpass the challenges involved. However, lenders and credit bureaus must invest in significant technological advancements. This shift will enable lenders to make more informed decisions, reducing risks and enhancing market efficiency, while borrowers will experience quicker recognition of their improved credit behavior.
How will the 15-day rule affect borrowers and lenders?
1. Faster credit score updates: Under the previous monthly reporting system, missed payments or defaults could take as long as 40 days to reflect on a credit report. This delay often led lenders to rely on outdated information, increasing the risk of misjudging a borrower’s creditworthiness. With the new 15-day reporting cycle, borrowers’ actions, such as timely payments or defaults, will be reflected in their credit scores much more quickly.
2. Improved credit risk evaluation: With access to up-to-date credit information, financial institutions will be better equipped to make informed decisions regarding personal loans. Lenders will be able to identify potential risks earlier, and borrowers who demonstrate responsible repayment behavior will benefit sooner from improved recognition of their creditworthiness.
Many first-time borrowers tend to apply for several loans at once, which can lead to difficulties in meeting their repayment obligations. Regularly updating this policy will enable lenders to closely monitor borrower behavior and evaluate their repayment ability in real time.
This approach will also eliminate ‘evergreening,’ where a borrower takes out a new loan to pay off an existing one, creating an unsustainable cycle of debt. By frequently updating this process, lenders will be better equipped to identify and address these situations, safeguarding both financial institutions and borrowers.
Equated monthly installments (EMIs) are set for different dates throughout the month. A monthly reporting cycle can lead to delays in capturing defaults or payments, potentially extending up to 40 days, which can result in outdated information for credit assessments. Transitioning to a 15-day reporting cycle would greatly minimize these delays. More regular updates enable lenders to more accurately and promptly identify defaults or payments.
